Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0600.
- Add a stop-loss at 1.0750.
- Timeline: 1 day.
Bullish view
- Set a buy-stop at 1.0710 and a take-profit at 1.0800.
- Add a stop-loss at 1.0625.
The EUR/USD pair was on edge on Wednesday morning as traders reflected on the latest OECD warning about economic growth and interest rates. The pair was trading at 1.0676 ahead of the upcoming Federal Reserve decision.
Inflation concerns persist
There is a lingering risk that central banks will continue hiking interest rates in the coming months as inflation rebounds. In a report, the OECD, a club of rich countries, argued that central banks should either keep hiking or leave them high for a while to fight inflation.
The report came at a time when inflation risks are continuing. For example, there are concerns about the Panama Canal, which has seen its water levels plunge. As a result, ships are being forced to either wait for days or take a longer route.
The other risk is that the price of crude oil has jumped to the highest level in more than 11 months. Oil is one of the biggest drivers of inflation around the world. Also, the ongoing auto workers strike will lead to higher vehicle prices in the near term.
There are also signs that the American economy is slowing. Data published on Tuesday showed that housing starts plunged by more than 11% to 1.28 million in August. Building permits rose to 1.54 million.
It is against this backdrop that the Federal Reserve will conclude its two-day meeting on Wednesday. Economists expect the FOMC will decide to leave interest rates unchanged and point to future increases.
The Fed, like other central banks, has been hiking rates in the past few months, pushing them to the highest level in two decades. As a result, many investors have moved to the US dollar, where money market funds are yielding almost 6%. European yields are much lower than that, leading to a strong carry trade opportunity.
EUR/USD technical analysis
The EUR/USD exchange rate has been in a strong bearish trend for a while. On Tuesday, the pair retested the upper side of the descending channel. It has remained below the 50-period moving average. Most crucially, the pair has slipped slightly below the key support level at 1.0685, the lowest level on September 7.
The Relative Strength Index (RSI) has pointed downwards. It has also formed a small bearish flag pattern. Therefore, the pair will likely continue falling, with the next reference level being at 1.0600.
Ready to trade our free daily Forex trading signals? We’ve shortlisted the best Forex trading brokers in the industry for you.