Bearish view
- Sell the EUR/USD pair and set a take-profit at 0.9800.
- Add a stop-loss at 1.000.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.9935 and a take-profit at 1.0055.
- Add a stop-loss at 0.9850.
The EUR/USD price pulled back amid rising expectations that the Fed will not start pivoting any time soon. It dropped to a low of 0.9880, which was the lowest level since October 25. It has fallen by more than 2% from its highest level last week.
Fed to remain hawkish for longer
The EUR/USD pair continued falling as investors predicted that the Fed will be more hawkish for longer. In a report, analysts at Goldman Sachs estimated that the bank will hike interest rates to 5% by March next year.
The analysts are pricing in a 0.75% rate hike this week followed by a smaller 0.50% increase in December. These increases will bring the year-to-date hikes to 400 basis points. The bank will then hike by 0.25% in February and March next year.
Goldman Sachs based their argument on the fact that the American economy is relatively strong and that inflation is stubbornly sticky. Data published last week showed that the American economy expanded by more than 2% in the third quarter. Goldman’s view was supported by analysts at UBS.
On the other hand, Morgan Stanley’s Mike Wilson said that the Fed’s tightening phase was nearing its end. He pointed to the price action of the yield curve between 10-year and three-month treasuries that has inverted recently. Wilson, who is highly-followed, was ranked the number 1 Wall Street strategist last week.
The EUR/USD price retreated after the strong economic data from Europe. In Germany, retail sales jumped by 0.9% in September after falling by 1.4% in the previous month. In Italy, the economy expanded by 2.6% in the third quarter. On the other hand, preliminary data showed that the bloc’s inflation jumped to 10.7% in October, the biggest increase ever recorded.
EUR/USD forecast
The EUR/USD price retreated to the lowest level since October 25. On the 4H chart, it moved below the key support level at 1.000, the highest point on October 4. It slipped below the 50-period moving average and is along the lower side of the Bollinger Bands.
The Relative Strength Index (RSI) dropped below the neutral level at 50. Therefore, the pair will likely continue falling as sellers target the lower side of the ascending red trendline at 0.9800. A rebound cannot be ruled out after testing that support level.
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