Bearish view
- Sell the EUR/USD pair and set a take-profit at 0.9850.
- Add a stop-loss at 1.0095.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0045 and a take-profit at 1.0135.
- Add a stop-loss at 0.9950.
The EUR/USD pair declined sharply in the overnight session as the market reflected on the strong American consumer inflation data. It crashed to a low of 0.9995, which was the lowest level since September 8. The price was also about 2% below the highest level this week.
Fed to remain hawkish
The EUR/USD price resumed the bearish trend as the US dollar made a strong comeback after the latest consumer inflation data. According to the Bureau of Labor Statistics (BLS), the headline consumer price index (CPI) rose from 0.0% in July to 0.1% in August. This increase was better than the median estimate of -0.1%.
On a year-on-year basis, inflation rose by 8.3% in August, which was lower than the previous 8.5%. However, this figure was worse than the median estimate of 8.1%. Meanwhile, core consumer inflation, which excludes the volatile food and energy prices, rose from 0.3% to 0.6% on a MoM basis. It rose to a multi-decade high of 6.3%.
Therefore, the pair dropped as investors changed their views about what the Federal Reserve will do. Before the data came out, most analysts were expecting that the country’s inflation dropped in August. Besides, the price of gasoline has dropped from the year-to-date high of $5 to about $3.70. Used cars and even rent prices have started dropping.
As such, analysts believe that the Fed will deliver another jumbo rate hike next week. The bank will also continue with its quantitative tightening (QT) process.
The next key catalyst for the EUR/USD will be the latest producer price index (PPI) data. Analysts expect that the headline PPI dropped from 9.8% in July to 8.8% in August. They also see the core PPI dropped from 7.6% to 7.1%. The pair will also react to the industrial production data from Europe.
EUR/USD forecast
The EUR/USD pair has been in a strong bullish trend in the past few days. It managed to rise from last week’s low of 0.9863 to a high of 1.0196. This rebound ended on Tuesday after the US inflation data. As it fell, it moved below the important support level at 1.0092, which was the highest level on August 26.
The pair managed to move below the standard pivot point and the 25-day and 50-day moving averages while the Relative Strength Index (RSI) moved below the neutral point of 50. Therefore, the pair will likely continue falling as it enters the distribution phase. The key support to watch will be at 0.9850.
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