Bullish view
- Buy the EUR/USD and add a take profit at 1.1830.
- Add a stop-loss at 1.1700.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.1750 and a take-profit at 1.1650.
- Add a stop-loss at 1.1850.
The EUR/USD pair tilted lower in the overnight session after the Wall Street Journal reported that the Federal Reserve was considering scaling back its $120 billion a month asset purchases. The pair declined to 1.1770, which was slightly lower than Friday’s high of 1.1805.
Federal Reserve in Focus
Last week, Federal Reserve’s Mary Daly told the Financial Times that the bank will likely start deliberating on tapering in the coming meetings. The same sentiment was repeated by other Fed officials like Eric Rosengren of Boston, Robert Kaplan of Dallas, and Raphael Bostic.
In an exclusive, the WSJ said that the officials were nearing an agreement to scale back the purchases in the next there months if the economy continues doing well. Some members of the committee are also pushing for the complete withdrawal of the program by June next year.
Therefore, the key events to watch will be a statement by the Fed chair later today and the minutes of these minutes that will come out on Wednesday. In his statement, the chair will likely provide his views about the recovery and the impacts of the Delta variant.
The next major thing that will likely move the EUR/USD today will be the economic data from the Eurozone. Eurostat, the bloc’s statistics agency, will publish the latest GDP numbers in the morning hours.
Analysts expect the data to show that the bloc’s economy rose by 2% in the second quarter. This growth likely led to an annualised expansion of 13.7%. Still, this being the second estimate, the impact on the EUR/USD pair will likely be muted.
Meanwhile, the US will publish the latest retail sales. Analysts expect that the headline sales declined by 0.2% in July as the Delta variant spread. The core retail sales are expected to decline from 1.3% to 0.1%.
EUR/USD Forecast
The hourly chart shows that the EUR/USD pair rose sharply on Friday after the weak US consumer confidence data. The pair then retreated overnight as concerns about a hawkish Fed rose.
The chart shows that the highest point on Friday was along the 50% Fibonacci retracement level. The pair is also along the 25-period and 15-period moving averages. Another notable observation is that the pair seems to be forming an inverted head and shoulders and a bullish flag pattern.
Therefore, the pair will likely bounce back on Tuesday. If this happens, the next level to watch will the 61.8% retracement at 1.1830. On the flip side, a drop below 1.1750 will invalidate this view.
