Risk event of the week starting Monday 25 July: US rate decision
With the long term weakness in EUR/USD, Richard Snow from Daily FX picks up on the trend and is looking for a better price to enter another short trade around US interest rates.
Welcome, let's take a look now at a Risk Event for the week starting Monday 25th July. As we go into that last full trading week of the month, we can catch up now with Richard Snow from DailyFX with a look ahead to that event next week. Rich, how are you doing? What's going on? What's on your horizon?
I'm looking at a short EUR/USD trade, particularly short term, something intraday or scalping, around the FOMC rate decision next week, Wednesday. The euro is still in a bit of trouble. Major risks to the region considering you have to look at the gas flows continuing between Nord Stream 1. Those are at lower levels than expected. We've also had widespread rejection after an EU proposal for member states to consume 15% less gas.
That continues to be a dark cloud over the eurozone and the euro. We obviously had the resignation of Italy's prime minister Mario Draghi, triggering snap elections to be held in September. And then we had the ECB rate decision yesterday, which actually was a positive on the grand scheme of things. And we saw that 50-basis point surprise and the introduction of the ECB's anti-fragmentation tool in the bond market to go along with it.
Looking at the US, a fairly different story. We've seen that markets are expecting a 75-basis point hike on Wednesday. I don't anticipate that that will see a surge in the dollar but will certainly remain supportive of the dollar. So, looking at the chart, I'm looking at that particular area of resistance, that $1.0280 level. We've seen a push towards that without breaking above.
So I'd be looking at another test of that level in the lead up to the FOMC decision whereupon we can look to fade such a move. We've been seeing a daily range of around 100 pips so, if you are to see a rejection of that $1.0280, perhaps looking at entries from $1.0250, going short, looking at about 100 pips, setting a stop around about $1.03 and look to fade that move.
There are multiple levels to the downside that you can look at. Longer term play, you'd be looking at parity, but as I mentioned, I'd be looking to to fade this one in a very short time frame going in to next week. Interesting. Thanks very much indeed, Rich. Looking there for a better price to get in to go short on the euro-dollar around the FOMC decision on Wednesday.
Jeremy Naylor | Writer, London
25 July 2022
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