FX.co ★ EUR/USD: What could stop the growth of the euro? A hypothesis

The EUR/USD pair has been in the growth stage for almost a month and a half. I have a lot of questions about this growth since bull traders attack in almost any condition. The information background may be different and has been different lately, but in most cases, we have seen the growth of the European currency. What could be the reason for this, and how long will this growth continue?

The market is aware that in June, the easing of the ECB's PEPP will begin, so after this moment, it will be extremely difficult for the European currency to show growth. The ECB rate is currently 4.5%, and the FOMC rate is 5.5%. The difference is already obvious. The currency of the central bank, whose rate is higher should become cheaper, not grow. But now we see the opposite movement. Of course, all the time the Fed rate was higher, the dollar could not show growth. But at the moment we are already interested in what will happen after the June ECB meeting. A rather logical question arises whether the current growth of the euro currency is not a preparation for a prolonged fall.

At this time, the opinion of analysts is almost unambiguous. The Fed's rate will begin to decline by autumn and only if inflation in the United States falls below 3% by that time. If this does not happen, then expectations will be postponed to the winter of 2024. And even postponing the mitigation of PEPP to next year is something outside the realm of fiction. Thus, the market understands that, most likely, it will observe a softening of the PEPP in Europe over the next 3-6 months, and the Fed rate will remain at its maximum. Therefore, the fall of the euro currency in this period is more than likely. Then it is advisable to buy euros at this time, while there is such an opportunity, and then sell at higher prices, having a higher potential for falling and making a profit.

It's just a hypothesis, but it has the right to live. The current growth of the euro looks illogical since the information background rarely indicates traders to buy the pair. But the pair grows, if not every day, then much more often than it should. Thus, the market is deliberately driving the price as high as possible in preparation for a prolonged fall.

Conclusion:

If all that is said above is true, then the information background will continue to be of secondary importance for traders. An important report will be released in the European Union this week, according to which inflation may rise slightly. However, the rise or fall of the euro will no longer depend on the actual value of this report but on whether traders will be ready to complete their cycle of buying euros before the ECB starts lowering the interest rate. If not, the European currency will rise on Friday anyway. And it may also show growth before Friday. If so, the decline will begin regardless of inflation in the European Union since it is already low enough to expect the ECB to only ease the PEPP. If a new wave up the euro fails to break through the peak of May 16, this will be the first serious sign that the bulls are starting to think about profit-taking and retreat.