Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0695.
- Add a stop-loss at 1.0550.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.0620 and a take-profit at 1.0550.
- Add a stop-loss at 1.0695.
The EUR/USD exchange rate has crashed hard this week as investors predict that the Fed and the ECB will move in different directions this year. The forex major crashed to the crucial support level at 1.0600, its lowest swing since November last year.
Fed and ECB divergence
European Central Bank officials appeared to confirm that the bank will continue to diverge with the Federal Reserve in statements this week.
Christine Lagarde said that the bank was on track to start slashing interest rates in reasonably short order even as the crisis in the Middle East continued.
Her view was shared by Francois Villeroy de Galhau, an ECB member from France. In his statement, he estimated that the bank would deliver more rates this year and in 2025 in a bid to supercharge the economic growth,
The ECB’s rate cuts seem justified since inflation in the bloc has retreated sharply in the past few months and is nearing the bank’s target of 2.0%. At the same time, some European countries are not doing well.
In a statement on Tuesday, the IMF said that Germany will be the worst-performing European country this year in the G7. It sees the economy growing by just 0.2% while France and Italy will grow by 0.7%.
The US, on the other hand, is expected to do well this year, helped by robust consumer spending and government spending. As such, there is a possibility that the Fed will not deliver more cuts than the ECB this year.
The EUR/USD pair is also falling because of the rush to safe havens as the crisis in the Middle East escalates. Israel is said to be considering more ways to retaliate against Iran, a move that will push energy prices and inflation higher.
The key EUR/USD news on Wednesday will be the final estimate of European inflation data for March. It will also react to statements by European Union leaders who are gathering in Frankfurt.
EUR/USD Technical Analysis
The EUR/USD has been in a strong freefall as it crashed in the past six straight days. It retreated below the crucial support level at 1.0695, its lowest swing on Valentine’s Day. The pair plunged below the 50-day moving average and the Ichimoku cloud.
At the same time, the Relative Strength Index (RSI), Stochastic Oscillator, and the Commodity Channel Index (CCI) have all moved to the oversold level. The Average Directional Index (ADX) has moved above 20, signaling that the downward momentum is continuing.
Therefore, while the outlook for the pair is bearish, there is a possibility that it will have a dead cat bounce and retest the important resistance at 1.0695.
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