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Can we expect appreciation of the EUR against the USD?


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The currency pair EUR/USD largely dominates the trade and predestines what will happen on foreign exchange markets. This is the forex instrument with highest volume of trading.

Very interesting things are expected to happen in the next days, which may change the trend of EUR/USD pair. And while no one expects the ECB to raise interest rates or stop its monetary stimulus policy at its upcoming meeting, the investors will watch for hints for the future monetary policy.

The European financial institution is expected to take test trials on the end of its monetary policy at its Thursday meeting, which may cause a publicly announcing the plans. It is very likely that ECB President Mario Draghi will use the June 14th meeting in Latvia as an opportunity to discuss the end of the buy-back program.

Currently, the bond purchases are scheduled to take place at least until September. However, there is no more clarity about the time of their ending, which brings serious uncertainty among market participants. And many market observers see a good time at the ECB meeting to “prepare the ground”. Mario Draghi may use the press conference to signal that a decision for the end of the quantitative easing program could come at the July meeting. Even addressing the issue would be a major advance and progress on the way out of the incentives.

The June decision may also be accompanied by new economic projections for the Eurozone. If the forecasts are good, the investors may decide that will see a recent exit from the incentives.

Otherwise, the Fed is expected to act on a plan and raise the level of interest rates at its upcoming meeting. The level of unemployment in the country, as well as that of inflation, gives full support for such a decision.

There are also a few signs that the problems of emerging markets will change the policy of the Fed. The analysts expect at least two more interest rises this year.

Fed chief Jerome Powell has tried to suggest that the policy of the reserve will not be changed, saying last month that the impact of US monetary policy on the world economy is “exaggerated”. Instead, Powell spent much more time in his speech to comment on the far more negative effects and risks of monetary stimulus policies.

On the one hand, a change in the ECB’s position on interest rates is expected, and on the other hand the expected increase in Fed’s interest rates is almost entirely in effect on the EUR/USD exchange rates. Thus, we may see an increase of the EUR against the USD, if the ECB is aggressive in terms of monetary policy by the end of the year.

From a technical point of view, we are witnessing something that, in spite of the relatively rare occurrence, is a very strong indicator for technical analysts – the so-called “deadly crossing”. This is the situation where the 50-period moving average (SMA) decreases below the long-term 200-period on a daily basis.

The last crossing of the two averages was in May 2017 and was followed by a strong appreciation of the EUR. Or if the red line does not return quickly, the EUR may face serious future problems against the USD.

However, returning the short-term over the long-term average, the investors could expect further EUR growth in the coming weeks, which could bring it back even beyond the psychological limit of 1.2000.