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Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0750.
- Add a stop-loss at 1.0945.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0895 and a take-profit at 1.1000.
- Add a stop-loss at 1.0800.
The EUR/USD exchange rate pared back some of the losses made on Friday after the positive European economic forecast and ahead of the upcoming US retail sales numbers. The pair was trading at 1.0872, lower than last month’s high of 1.1083.
US retail sales and European GDP data
The European economy is expected to do well this year, helped by the relatively low energy costs. According to the European Commission, the economy will expand by 1% this year from the previous estimate of 0.8%. It then expects that the economy will grow by between 1.7% and 1.6% in 2024. Ireland and France are expected to have the fastest growth rate during the year.
The Eurostat will publish the second estimate of the first-quarter GDP data on Tuesday. Economists expect the data to show that the economy expanded by 0.1% in Q1 after growing by 0.3% in the previous quarter. On a yearly basis, the data is expected to show that the economy grew by 1.3%. A stronger figure than expected will be bullish for the EUR/USD pair.
The EUR/USD pair will react to the upcoming American retail sales data scheduled for later today. Economists expect the data to show that the headline retail sales rose from -0.3% in March to 0.8% in April. Core retail sales, excluding food and energy prices, are expected to come in at 0.4% in April.
Therefore, there is a likelihood that the Federal Reserve and the European Central Bank (ECB) will diverge. The ECB is expected to continue hiking interest rates while the Fed has likely reached the peak of its rate hikes. In a statement on Monday, Raphael Bostic, a Fed official said that the Fed will only consider rate hikes in 2024.
EUR/USD technical analysis
The EUR/USD pair dropped to a low of 1.0843 on Friday as the US dollar index rose. It then pulled back on Monday to trade at 1.0872, which is about 25-period and 50-period exponential moving averages (EMA). The pair has moved below the key support at 1.0945, the lowest point on May 2.
Meanwhile, the Relative Strength Index (RSI) and the Stochastic Oscillator have drifted upwards. It has also formed a bearish flag pattern. Therefore, the pair will likely have a bearish breakout as sellers target the next key support at 1.0700.
