Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0900.
- Add a stop-loss at 1.1000.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.100.
- Add a stop-loss at 1.0900.
The EUR/USD exchange rate continued falling as concerns about the American economy continued. The pair dropped to a low of 1.0928 on Tuesday as US stock indices like Dow Jones and Nasdaq 100 indices dropped by more than 1%.
Safe-haven demand
The EUR/USD pair retreated as the US dollar index (DXY) jumped on Tuesday. This happened as concerns about the US banking sector continued. Moody’s, one of the biggest credit rating agencies, downgraded some of the biggest regional banks. It also placed banks like State Street and Northern Trust on watch for a downgrade.
The rating downgrade on US banks came a week after Fitch decided to downgrade America’s rating from AAA to AA+. The company warned about the country’s soaring debt and budget deficit. In most cases, the US dollar tends to rise when new risks emerge as investors move to a risk-off sentiment.
The EUR/USD exchange rate also retreated after mixed messaging by Fed officials. In statements on Saturday and Monday, Michele Bowman insisted that the bank needed to implement more rate hikes even as inflation remained at an elevated level.
In a separate report on Tuesday, John Williams said that he believes that the bank is nearing the end of the hiking cycle. Patrick Harker of the Philadelphia Fed also noted that the bank should be patient. He said:
“Absent any alarming new data between now and mid-September, I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions we have taken do their work.”
There will be no economic data from the US and in Europe on Wednesday. Therefore, traders will continue watching the mood in the market.
EUR/USD technical analysis
The EUR/USD pair retreated after Moody’s downgraded several American banks. On the 4H chart, the pair remains below the 50-period exponential moving average. It also moved slightly below the middle of the Donchian Channels. The pair also moved to the 50% Fibonacci Retracement level.
Therefore, the outlook of the pair is bearish, with the next important support level to watch being at 1.0910, the lowest point on August 3rd. A break below this support will see it drop to the next support level at 1.0900.
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