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EUR/USD: towards a possible recovery of the euro against the dollar in the short term

Rehabilitation of the euro against the dollar

EUR/USD resists despite sharp rise in risk aversion in markets

The EUR/USD price has shown stability for several days, despite a sharp increase in risk aversion in the markets. The euro remained in balance against the US dollar for several sessions as most other major currencies decline on growing recession fears, China health restrictions and the Fed's rapid tightening.

This resilience of the euro against the dollar is a hopeful sign of a recent excess of pessimism about the single currency. Thus, the euro can quickly gain momentum, as soon as the slightest clarification of the general mood of market participants appears.

At a slightly more fundamental level, the EUR/USD rally could be justified by even more hawkish rhetoric from ECB members as more officials speak in favor of raising rates towards the end of the year. Several ECB members are expected to speak this week, including a speech by Christine Lagarde on Wednesday.

The EUR/USD pair will also be sensitive to the release of US inflation data on Wednesday. Lower-than-expected figures would ease pressure on the Fed to tighten monetary policy, which would benefit EUR/USD.

4-hour EUR/USD price chart - key levels

The exit of the EUR/USD pair from the range will set the pace

In terms of technical analysis, since the beginning of the month, the EUR/USD pair has fluctuated between a 2015 low at 1.0462 and a 2020 low at 1.0637. The outlook is technically neutral in the short term between these two limits, but the risk/reward ratio is favorable for buying. Indeed, the bottom of 2015 is an extremely important price level, around which the exchange rate recovered in 2017 and 2020.

A bounce above $1.0637 will pave the way for a short-term EUR/USD bullish reversal that could extend to the symbolic $1.10 threshold. Conversely, a pullback below $1.0462 will pave the way for a continuation of the underlying downtrend, with the next support to watch for being the 2017 low at $1.0340.

Entry: buy above $1.0640

Risk-reward ratio: >3

Follow the price of the EUR/USD pair with IG

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