Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0500.
- Add a stop-loss at 1.0650.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0630 and a take-profit at 1.0720.
- Add a stop-loss at 1.0550.
The EUR/USD pair has been in a freefall after peaking at 1.1280 in July as the US dollar index rally gained steam. This sell-off gained steam on Wednesday morning as market risks continued.
Market risks are rising
The EUR/USD pair dropped sharply as investors reacted to the rising risks in the financial market. For example, data published on Tuesday revealed that Americans are still concerned about the state of the economy.
As a result, consumer confidence slipped to the lowest level in more than three months. It slipped to 103, lower than the median estimate of 105.50. Another report revealed that new home sales dropped by 8.7% in August to 675k as mortgage rates neared 8%. Home prices rose by 0.8% on a MoM basis.
There are also elevated risks that the US government will move to a shutdown on October 1st. In a note on Monday, Moody’s warned that a prolonged shutdown will have a major impact on the economy. Still, there is a likelihood that the shutdown will not last long.
Further, there are risks about the automotive industry, which accounts for 3% of the GDP. Thousands of workers have remained in strike in the past two weeks and there is a possibility it will go on for a while.
There are also rising inflation risks. The most recent data showed that the headline consumer price index (CPI) rose from 3.2% in July to 3.7% in August. And with gasoline prices rising, there is a possibility that inflation will move above 4% soon.
China is also going through a major slowdown as many real estate companies remain on the verge of collapse. Former giants like Country Garden and Evergrande are on life support, with many projects being halted. Therefore, the dollar index has jumped as investors rush to the safety of the greenback.
EUR/USD forecast
The EUR/USD pair has been in a strong downward trend in the past few weeks. It has formed a descending channel and is at its lower side. The pair has dropped below the key support at 1.0633, the lowest point in May. It is now attempting to move below this lower side.
The EUR/USD price has also dropped below the 50-period moving average while the Relative Strength Index (RSI) is slightly above the oversold level. Therefore, the pair will likely continue falling as sellers target the key support at 1.0500.
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