Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0500.
- Add a stop-loss at 1.0700.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0620 and a take-profit at 1.0725.
- Add a stop-loss at 1.0550.
The EUR/USD exchange rate suffered a harsh reversal in the overnight session even as bond yields and crude oil prices retreated. After surging to a high of 1.0700 on Monday, the pair nosedived to 1.0590 as traders prepared for the upcoming ECB decision.
ECB set to pause rate hikes
The EUR/USD pair retreated after another set of weak economic data from the United States and Europe. According to S&P Global, business activity in Europe continued weakening in October.
The manufacturing PMI in the region dropped from 43.4 in September to 43 in October, the lowest level in three years. That decline was lower than the expected 43.7.
Manufacturing output in Europe has weakened as automakers face competition from Chinese companies and as energy prices remain at an elevated level. At the same time, some European manufacturers have started to move to the United States, thanks to government incentives.
The services sector also remained in the red. The PMI dropped from 48.7 in September to 47.8. These numbers are signs that the bloc’s performance will underperform this year as geopolitical and inflation woes continue.
The US, on the other hand, is doing modestly well. Its manufacturing PMI rose from 49.8 in September to 50.0 in October. In the same period, the services PMI jumped from 50.1 to 50.9. A PMI figure of 50 and above is a sign that an industry is doing well.
Therefore, these numbers mean that the Federal Reserve has more room to be hawkish than the ECB. The ECB will start its monetary policy meeting on Wednesday and deliver its decision on Thursday. Economists expect the bank to maintain its interest rates unchanged.
Meanwhile, the price of crude oil continued falling. Brent dropped to $88.25 while West Texas Intermediate (WTI) fell to $83.90.
EUR/USD technical analysis
The EUR/USD suffered a harsh reversal after the mixed economic data from the US and Europe. As it slipped, the pair moved below the important support level at 1.0641, the highest point on October 12 and the 23.6% Fibonacci Retracement level.
The pair also moved below the 50-period and 25-period Arnaud Legoux Moving Average (ALMA). It has also formed a rising broadening wedge pattern while the Relative Strength Index (RSI) has drifted downwards.
Therefore, the pair will likely continue falling as traders wait for the upcoming ECB decision. It could retreat to the key support level at 1.0550.
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