Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.100.
- Add a stop-loss at 1.1150.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.1120 and a take-profit at 1.1220.
- Add a stop-loss at 1.1000.
The EUR/USD exchange rate dropped below the key support level of 1.1096 after the latest Spanish election and weak European inflation numbers. It pulled back to a low of 1.1070, the lowest level since July 12th.
ECB and Fed decisions ahead
The EUR/USD pair retreated as traders refocused on the upcoming interest rate decisions by the Federal Reserve and European Central Bank (ECB) decisions. The Fed’s decision will come out on Wednesday followed by the ECB on Thursday.
Recent economic numbers show that the two central banks are at a crossroads with inflation being sticky. European’s inflation dropped to 6.40% in June while the American one fell to 3.0%. The core consumer price index, which excludes the volatile food and energy prices, dropped to 5.5% and 4.8%, respectively.
At the same time, there are signs that the two economies are slowing. Europe has already moved into a recession as the cost of living escalated. Recent numbers from the US have also been weak, with retail sales, inflation, and building permits falling in June.
On Monday, data published by S&P Global revealed that business activity in Europe and the US worsened in July. In Europe, the manufacturing PMI dropped from 43.4 in June to 42.7 in July while the services PMI fell from 52 to 51.1. The two figures were worse than what analysts were expecting.
In the United States, the services PMI dropped from 54.4 in June to 52.4 in July while the manufacturing PMI rose to 49. Therefore, against this backdrop, analysts believe that the Fed and the ECB will hike rates by 0.25% cautiously.
On Tuesday, the key EUR/USD news to watch will be the upcoming German business and US consumer confidence data.
EUR/USD technical analysis
The EUR/USD pair dropped on Monday, continuing the slide that started on July 18th. As it dropped, the pair moved below the key support level at 1.1096, the highest level on May 3rd this year. The pair dropped below the 50-period moving average while the RSI moved below the oversold level.
At the same time, the MACD has moved below the neutral level. Therefore, the pair will likely continue falling as sellers target the next key support level at 1.1000. The stop-loss of this trade will be at 1.1150.
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