Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0400.
- Add a stop-loss at 1.0545.
- Timeline: 1 day.
Bullish view
- Set a buy-stop at 1.0520 and a take-profit at 1.0620.
- Add a stop-loss at 1.0450.
The EUR/USD price sell-off continued as traders focused on the rising long-term US government bond yields. The pair plunged to a low of 1.0472, the lowest level it has been since December 2022. It has retreated by more than 7.30% from the year-to-date high.
US bond yields surge
The key driver for the falling EUR/USD was the ongoing long-term bond sell-off. The 10-year yield jumped to a high of 4.80%, the highest level since 2007. Similarly, the 30-year bond yields rose to 4.9% while the 5-year jumped to 4.78%.
American bonds have been in a steep sell-off in the past few months for several reasons. First, there are signs that the Federal Reserve is committed to keep hiking rates even as risks to the American economy rise. The dot plot of the last meeting showed that officials expect at least one more 0.25% increase.
In a statement on Monday, Loretta Mester, a Fed official, argued that the bank needed to deliver another hike since inflation remains at an elevated level. Other Fed officials have also pointed to more increases in the coming months.
Bonds have also slumped as some of the biggest holders continued selling their holdings. China has dumped bonds worth over $300 billion in the past few years. Other countries like Saudi Arabia and Japan have also trimmed some of their holdings.
Further, the government has continued boosting its debt in the past few decades. Total government debt has jumped to more than $33 trillion, with the total repayment coming in at over $808 billion per year.
The next key data to watch will be the upcoming European retail sales and PPI data. Economists expect the data to show that sales dropped by 0.3% in August while PPI slipped by 11.6% (YoY). The other key data will be the services PMI numbers from the US and Europe.
EUR/USD technical analysis
The EUR/USD pair has been in a strong downward trend in the past few months. It slipped below the important psychological level at 1.0500. On the daily chart, the pair is approaching the 50% Fibonacci Retracement level.
Most importantly, the EUR/USD price has formed a death cross pattern, where the 200-day and 50-day moving averages made a crossover. The Relative Strength Index (RSI) has moved to the oversold level. Therefore, the pair will likely continue falling, with the next reference level being at 1.0400.
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