The plunge of euro / dollar is suspended and attempts to build a potential bearish flag, waiting for the opportunity to short!

The euro / dollar seemed to be trapped in a narrow range, as it retook its gains after the Fed's decision; With the construction of the potential bearish flag, it is expected that the euro / dollar will continue to consolidate in the next few days.

Euro / dollar trend forecast: building a potential bearish flag

From the beginning of this week, the euro / dollar has hardly changed much. The US dollar benefited from the deterioration of risk sentiment, but the latest data from the US side may pose a negative risk to the US dollar, as it is expected that the latest consumer price index (CPI) in the US will show signs of slowing inflation.

After recording a growth rate of 8.5% last month, it is expected that the growth rate of CPI in the United States will slow to 8.1% in April. If there is evidence that price pressure slows, it will indicate that the efforts made by the Federal Reserve to fight inflation have an expected impact, which may make the euro / dollar continue to maintain the current range trading mode.

However, the latest data is not expected to have an impact on the normalization of monetary policy by the Federal Open Market Committee (FOMC), as John Williams, chairman of the New York Fed, and the FOMC permanent voting Committee insisted that the Federal Reserve would act quickly so that the federal funds rate would return to a more normal level this year. At the nabe/ Bundesbank international economic seminar, he said that the committee was on the path of raising interest rates and shrinking the table.

The comment suggested that the Fed was on the default path, because the Committee generally believed that the next few meetings should take another 50 basis points interest rate hike into account.

The divergence of monetary policies between the FOMC and the European Central Bank (ECB) may limit the recent recovery of the euro / dollar, as ECB president Christine Lagarde and her colleagues are still preparing an exit strategy.

In other words, with the construction of a potentially bearish flag in progress, it is expected that the euro / dollar may continue to face the risk of range shocks before the next interest rate decision of the FOMC. However, if the euro / dollar recovers further, it may continue to ease the tilt in retail sentiment, as seen last year.

I

G customer sentiment indicator (retail position report) shows that 72.27% of retail investors hold net long positions in euro / dollar, and the ratio of long positions to short positions is 2.61:1.

The net long position increased by 0.97% compared with yesterday and decreased by 6.43% compared with last week; The net short position increased by 0.19% compared with yesterday and 3.06% compared with last week.

The decline in interest in net long positions helped ease congestion, as 76.01% of retail investors held net long positions in euros / dollars last week. At the same time, the increase in net short positions coincided with the rise in the euro / dollar after the FOMC resolution.

In other words, the latest CPI data of the United States may keep the euro / dollar trading within the established range. US inflation is expected to slow for the first time since last August.

However, it is expected that the current consolidation of euro / dollar will eventually yield to further decline, as the exchange rate is building a potential bearish flag.

Technical analysis of euro / dollar trend:

The downward sloping 50 day SMA (simple moving average) and 200 day SMA continued to cast a cloud over the bearish outlook for the euro / dollar, falling below the 2020 low of 1.0636, pushing the RSI index (relative strength index) into the oversold range. In April, the exchange rate refreshed its annual low to 1.0471.

However, it rebounded before the euro / dollar hit a 2017 low of 1.0340, and the RSI index released a textbook Level buying signal. However,

Against the backdrop of a weak close above the 1.0640 line, the euro / dollar seems to be building a potential bearish flag.

As the euro / dollar continues to hold steady above the April low of 1.0471, it is expected that the exchange rate will continue to maintain a range of volatile trading, but if it falls below / closes below the line of 1.0500, it may push the exchange rate further down to the Fibo overlapping range of 1.0330-1.0370, which includes the 2017 low of 1.0340.