Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0695.
- Add a stop-loss at 1.0850.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0800 and a take-profit at 1.0900.
- Add a stop-loss at 1.0695.
The EUR/USD exchange rate moved sideways on Monday as the US markets remained shut for the celebration of George Washington’s birthday. The pair was trading at 1.0775 on Tuesday morning, a few points above last Friday’s low of 1.0697.
European economy is slowing
The EUR/USD pair has remained under pressure in the past few weeks as concerns about the European economy. Data published last week revealed that the German GDP contracted in the fourth quarter even as it became the third-biggest economy in the world.
In a statement on Monday, the head of Bundesbank said that the contraction will continue this quarter. He attributed this slowdown to the recent transport strikes, weak consumer and industrial demand, and government policies.
Germany is not the only troubled European economy. In France, the government announced that it would slash about 10 billion euros out of its budget. The government noted that the weak economic growth made its fiscal plans untenable. Economists expect that the French economy will expand by 1% this year.
This performance has made many analysts to predict that the European Central Bank (ECB) will move to cut rates earlier than the Federal Reserve. Besides, recent data showed that the American economy is doing better than its global peers.
The economy expanded by 3.3% in the fourth quarter and this growth may continue this year. Also, the unemployment rate remains at a low level of 3.7% while inflation has jumped to 3.1%. As such, the Fed may not be in a hurry to cut rates.
There will be no economic data from the US and Europe. Therefore, traders will focus on the upcoming minutes by the Federal Reserve. These minutes will provide more color about the last meeting and what to expect later this year.
EUR/USD forecast
The EUR/USD pair has been in a bearish trend after peaking at 1.1100 in January. It has made a series of lower lows and lower highs. Most recently, the 50-day and 25-day moving averages have made a bearish crossover, a popular bearish sign.
Also, the pair has formed a head and shoulders pattern. It is now hovering near the lower side of this pattern. Therefore, the EUR/USD pair will likely have a bearish breakout in the coming days. This view will be validated when the pair drops below the key support at 1.0697, its lowest swing last week.
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