Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1150.
- Add a stop-loss at 1.1075.
- Timeline: 1 day.
Bearish view
- Set a sell-stop at 1.1080 and a take-profit at 1.100.
- Add a stop-loss at 1.1165.
The EUR/USD exchange rate rose slightly after the Fed delivered a neutral interest rate decision on Wednesday. It rose to 1.1115 ahead of the upcoming interest rate statement by the European Central Bank (ECB).
ECB decision ahead
The Fed decided to hike interest rates by 0.25% to between 5.25% and 5.50%, the highest level in over 22 years. The hike came after the bank left rates unchanged in June. In its statement, Jerome Powell warned that the path to bring inflation to 2% was a long one despite the recent decline. He sees inflation falling to the 2% target by 2025.
I believe that the Fed will hit its target earlier than Powell expects. Data published this month revealed that the headline consumer price index (CPI) dropped from 4.1% in May to 3.0% in June. The closely watched core inflation fell to 4.8%. Therefore, if the downward trend continues, core inflation could drop hit 2% by January next year.
The ECB will deliver its decision on Thursday. Like the Fed, analysts expect it to hike rates by another 25 basis points, bringing the rates to 4.25%, the highest level in more than two decades.
The ECB is also under pressure to bring inflation to the 2% target. The most recent data showed that the consumer price index was 5.5%. Therefore, the bank will likely signal that more rates will come.
The decision will come two days after a survey of 158 banks in Europe showed that loan demand had fallen to the lowest level since records started in 2003. Most individuals and companies are getting wary of borrowing in a high-interest environment.
The other important EUR/USD news to watch will be the first estimate of America’s Q2 GDP data. Economists expect the data to show that the economy expanded by 1.8% in Q2 after growing by 2% in Q1.
EUR/USD technical analysis
The EUR/USD pair has made a modest recovery after it slipped to a low of 1.1022 this month. It moved slightly above the resistance level at 1.1100 after the Fed decision. On the hourly chart, it rose above the 50-period moving average and the 38.2% Fibonacci Retracement level.
The pair is also between the first support and the lower line of the Andrews Pitchfork tool. Also, it has risen above the Ichimoku cloud indicator. Therefore, the pair will likely continue rising ahead and after the ECB decision as buyers target the psychological level at 1.1150.
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