EUR/USD Forex Signal: Bearish Flag Signals Weakness

Crispus Nyaga

The pair will likely resume the downward trend as bears target the key support at 1.2050.

Bearish View

  • Sell the EUR/USD ahead of the FOMC decision.
  • Add a take-profit at 1.2050 and stop-loss at 1.2150.
  • Timeline: 1-2 days.

Bullish View

  • Set a buy-stop at 1.2150 and a take-profit at 1.2200.
  • Add a stop-loss at 1.2100.

The EUR/USD pair was little changed during the Asian session as traders focused on the previous and upcoming economic data from the United States and the Fed interest rate decision. The pair is trading at 1.2120, which was slightly above this week’s low of 1.2093.

US Data Dump

On Tuesday, the US published mixed Producer Price Index (PPI) and retail sales numbers. According to the Bureau of Labor Statistics, the country’s PPI rose by 6.6% in May as commodity prices kept rising. This increase was better than the median estimate of 6.3%. Core PPI rose by 4.8% year-on-year after rising by 4.1% in the previous month. Still, with some commodity prices like lumber falling, there is a possibility that the prices will start easing.

The US also published relatively weak retail sales numbers. The numbers revealed that the headline sales declined by 0.7% in May as the impacts of the stimulus started fading. Other important data published on Tuesday were the positive industrial and manufacturing production numbers that rose by 0.8% and 0.9%, respectively.

The US data dump will continue today as the country releases housing starts and building permits data. Analysts expect the data to show that the housing starts rose from 1.569 million in April to 1.630 million in May. They also see the number of building permits falling from more than 1.733 million to 1.730 million. Other numbers that will come out today are on the mortgage and export and import price indices.

Still, the biggest catalyst for the EUR/USD will be the Fed decision that will come out during the American session. Most economists expect that the Fed will leave its pandemic response tools unchanged. However, there are mixed opinions on whether the bank will maintain its dovish tone or turn hawkish.

EUR/USD Technical Analysis

The three-hour chart shows that the EUR/USD pair crawled back after dropping to the weekly low of 1.2093. It has risen to 1.2120 and formed a bearish flag pattern. In price action, a flag or pennant pattern is usually a sign of continuation. It has also moved below the 25-day and 50-day exponential moving averages and formed what looks like a head and shoulders pattern. Therefore, the pair will likely resume the downward trend as bears target the key support at 1.2050.

EUR/USD

Crispus Nyaga
Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.

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