The EURUSD exchange rate has dumped after the trade deal was signed between the U.S. and Europe.
EURUSD – Daily Chart
The EURUSD price has slumped to test the 1.1580 level, which marked the April high. The bears have the upper hand, and the bulls may stand back. A 325 pip opportunity is possible to the next support at 1.1200.
The rally in the euro versus the USD started to seem overdone, and the signing of the trade deal between the U.S. and Europe has led to a big sell-off in the single currency. The U.S. dollar has been punished since the tariff turmoil, but as deals continue to be signed, including with Europe, which is one of the key trading partners for the U.S.
The interest rate scenario also seems to be priced in, and traders do not expect the Fed to move quickly. The latest selling was waiting for the right news event, and traders should trade with some caution but look to play the correction downside.
The next big event this week is the Federal Reserve interest rate meeting and there is some dissent over holding rates steady. The vote may not be unanimous, with members Waller and Bowman looking for a July cut. President Trump appointed both and may see an opportunity ahead to replace Chair Powell.
The Fed Chair was previously noting tariff effects on inflation, but with a deal signed with the UK, Japan, and Europe, those fears have likely started to recede.
“The long euro trade is undoubtedly facing a reality check this week,” said Bruno Schneller at Erlen Capital Management.
“Monday’s sharp drop in euro/dollar felt like more than just a reaction to headlines it exposed how stretched positioning had become in one of the market’s most consensus views.”
“What stood out wasn’t just the magnitude of the move, but the lack of support on the way down,” he added.
The Non-Farm payrolls will close out the week for the U.S. economic event data, and a strong jobs market could make it a bad week for the euro.
