Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0405.
- Add a stop-loss at 1.0715.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0725.
- Add a stop-loss at 1.0500.
The EUR/USD wavered on the first trading day of November as traders waited for the upcoming Federal Reserve decision. It also moved sideways after the mixed economic numbers from Europe. It was trading at 1.0570, where it has been since Monday.
FOMC meeting ahead
The EUR/USD pair reacted mildly to the relatively mixed European economic numbers published on Tuesday. According to Eurostat, the European economy contracted in the third-quarter as consumer spending waned.
The block contracted by 0.1% in Q3 after expanding by 0.2% in the previous quarter. This contraction was worse than the median estimate of 0.0%. The economy expanded by just 0.1% on a YoY basis.
On a positive side, European inflation continued falling in October. The headline Consumer Price Index (CPI) dropped to 0.1% in October after expanding by 0.3% in the previous month. Inflation fell from 4.3% in September to 2.9% on a YoY basis.
These numbers mean that Europe’s inflation is approaching the European Central Bank’s target of 2.0%. It has already moved to that target in some countries like the Netherlands, where inflation dropped to 0.4%.
Therefore, there is a likelihood that the ECB will maintain its interest rates at the current historic rate of 4.0% for a while. It will then start cutting them in 2024 in a bid to support the bloc’s recovery.
The next important catalyst for the EUR/USD pair will be the upcoming interest rate decision by the Federal Reserve. Most economists believe that the bank will leave interest rates unchanged between 5.25% and 5.50%. It will also hint of a final rate hike in its December meeting if inflation remains stubbornly high.
A more hawkish pause will lead to more EUR/USD weakness as investors move to the more attractive greenback.
EUR/USD technical analysis
The EUR/USD exchange rate has moved sideways in the past few days. Along the way, the pair formed a small ascending channel, which has a resemblance of a bearish flag pattern. It remains slightly below the 50-day moving average and the 38.2% Fibonacci Retracement level.
The pair has also moved below the key resistance point at 1.0636, the lowest swing on May 31st. Therefore, the pair will likely have a bearish breakout in the coming days as sellers target the 50% retracement point at 1.0406.
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