Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0915.
- Add a stop-loss at 1.0837.
- Timeline: 1-2 days.
Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0830.
- Add a stop-loss at 1.0910.
The EUR/USD exchange rate retreat continued, pushing it to the lowest level since July 2nd. It has plunged by more than 3.50% from the highest level in July as the US dollar index has bounced back to $103.
Rising bond yields and USD
The EUR/USD came under pressure as the US bond yields jumped following the moderately hawkish Federal Reserve minutes.
The yield of the 2-year Treasury rose by 4.1 basis points last week while the 10-year and the 30-year rose by 8.5% and 10.5%, respectively. The ten and 30-year yields are sitting at their highest levels in more than a decade.
Stocks have also joined the sell-off as concerns about the US and Chinese economies remain. The Dow Jones index has dropped by more than 3% from the highest level this year while the S&P 500 and Nasdaq 100 sell-off has been deeper.
Looking ahead, there will be no major market-moving economic data from the US and China on Monday. The only important data to watch will come out on Tuesday when the US will publish the latest existing home sales numbers.
The most important economic event to watch this week will be a meeting of central bank officials at the Jackson Hole Summit in Wyoming. This meeting brings together officials from banks like the Federal Reserve, the European Central Bank (ECB), and the Bank of England.
This will be an important meeting since it comes at a time when European and US economies are diverging. Recent data from the US has shown that the economy is still growing while inflation is drifting downwards. Europe, on the other hand, is showing signs of slowing down as energy prices bounce back.
EUR/USD technical analysis
The EUR/USD pair has been in a strong bearish trend in the past few months. Most recently, it flipped the important support level at 1.0912 into a resistance level. This was an important point since it was the lowest level on August 3rd. The pair has remained below the 25-day and 50-day moving averages.
On the positive side for the euro, the pair has formed a falling wedge pattern that is shown in black, In most periods, this pattern is usually a sign of a bullish reversal. Therefore, the pair will likely have a bullish breakout this week and retest the key resistance at 1.0912.
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