Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0545.
- Add a stop-loss at 1.0633.
- Timeline: 1 day.
Bullish view
- Set a buy-stop at 1.0615 and a take-profit at 1.0715.
- Add a stop-loss at 1.0545.
The EUR/USD exchange rate continued its brutal sell-off as the fear of soaring interest rates led to a major bond sell-off. The pair retreated to a low of 1.0578, the lowest level since March.
US consumer confidence data
The EUR/USD pair has been in a strong sell-off after peaking in July. This sell-off intensified after the recent interest rate decisions by the Federal Reserve and the European Central Bank.
The Fed left interest rates unchanged between 5.25% and 5.50%. In its accompanying statement, the Fed pointed to at least one more rate hike this year. In Europe, the ECB hiked rates by 0.25% and hinted that it was done hiking.
Therefore, the actions by the Fed have triggered a major bond sell-off in the US. The 30-year bond yield rose to 4.51% while the 10-year has jumped to 4.45%, the highest level in over 16 years. 2-year bond yields have risen to 5%, pushing the yield curve inversion to the lowest level in decades.
The rising bond yields have led to major implications in the market. It has led to more demand for dollars, pushing the dollar index (DXY) to the highest level in more than 5 months. Also, it has made stocks more unattractive.
The EUR/USD pair has also retreated as risks to the economy have risen. For example, the UAW strike is going on, putting the automotive industry at risk. Also, there are lingering supply chain risks as the Panama Canal crisis continues. Energy prices have also jumped.
The next key catalyst for the EUR/USD pair will be the upcoming US consumer confidence and housing data. Economists expect the numbers to show that confidence slipped to 105.6 in September. They also see the new house price index rose by 0.5% in August.
EUR/USD technical analysis
The EUR to USD exchange rate sell-off gained steam on Tuesday. It slipped to 1.0578, much lower than the year-to-date high of 1.1280. The pair has dropped below the important support level at 1.0633, the lowest level in May last year. It has also dropped to the lower side of the descending trendline that connects the lowest swings since July 23rd.
The pair has dropped below the 50-day moving average while the Relative Strength Index (RSI) moved to the oversold level of 30. Therefore, the outlook for the pair is bearish, with the next target being at 1.0545.
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