Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0850.
- Add a stop-loss at 1.0950.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0935 and a take-profit at 1.0965.
- Add a stop-loss at 1.0850.
The EUR/USD price continued its freefall on Monday morning as investors assessed the implications of last week’s European Central Bank (ECB) and Federal Reserve decisions. After peaking at 1.1000 last week, the pair retreated to below 1.0900.
Fed and ECB decisions
The EUR/USD pair had an eventful week as the ECB and Federal Reserve delivered their interest rate decisions. The Fed went first on Wednesday and left interest rates unchanged between 5.25% and 5.50%.
In an important turn of events, the Fed hinted that it would start cutting rates in 2024. Precisely, the dot plot confirmed that officials expected it to deliver at least three rate cuts.
Some economists believe that the bank will deliver more hikes as the economy slows. Other analysts believe that the Fed has no incentive to cut rates since retail sales are strong and the unemployment rate sits at the lowest level in decades.
Fed’s Austan Goolsbee confirmed this view during the weekend, arguing that it was too early to declare victory on inflation. He noted that while the Fed had achieved a lot in its inflation fight, it had more work to do.
Economic data published last week confirmed this as core inflation remained double its target in November. Later this week, the US will publish the important Personal Consumer Expenditure (PCE), which is the Fed’s favourite inflation gauge.
Meanwhile, the European Central Bank also left rates unchanged at its highest point on record. Unlike Powell, Christine Lagarde warned that the bloc’s interest rates would remain higher for longer.
Looking ahead, there will be no major economic data from the US and Europe on Monday. The only important data to watch will be Europe’s inflation figure set for Tuesday.
Still, volume will start falling this week as many institutional investors start their Christmas holiday celebrations.
EUR/USD technical analysis
The EUR/USD pair plunged hard after forming a double-top pattern at 1.1000. In price action analysis, this pattern points to a bearish breakout. The pair has also moved to the 23.6% Fibonacci Retracement point.
It has also dropped below the middle line of the Andrews Pitchfork tool, which is an important bearish sign. It also crossed the second resistance of the Woodie pivot point. Therefore, the pair will likely continue falling as sellers target the first resistance at 1.08500.
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