Bearish View
Sell the EUR/USD and set a take-profit at 1.1220 (S3).
Add a stop-loss at 1.1450.
Timeline: 1-2 days.
Bullish View
Set a buy-stop at 1.1385 and a take-profit at 1.1450.
Add a stop-loss at 1.1300.
The EUR/USD sell-off gained steam overnight as the market reacted to the strong economic data from the United States. These numbers signalled that the economy is doing relatively well, which could force the Fed to tighten faster than expected. The pair dropped to a multi-month low of 1.1330, which was about 3% below the highest level this month.
US Economic Strength
The American economy appears to be recovering at a relatively faster pace. Earlier this month, the country’s non-farm payrolls numbers revealed that the economy added more than 540k jobs. The unemployment rate fell to 4.6% while the wage growth accelerated.
A few days later, numbers by the Bureau of Labor Statistics (BLS) revealed that the American inflation surged to the highest level since 1991. This happened as the cost of fuel and gas jumped sharply. The supply logjam has also contributed to higher prices. Indeed, more than 54% of all small companies have signalled that they will hike prices.
And on Tuesday, numbers revealed that the country’s retail sales jumped sharply in October. The headline retail sales rose by 1.7% in October after rising by 0.8% in the previous month. Core sales, which exclude the volatile food and energy prices, rose by 1.7% in the same period. This is a sign that consumer spending, which is an important part of the GDP, is doing well.
Meanwhile, the Export Price Index rose from 0.4% to 1.5%, while the Import Price Index rose from 0.4% to 1.2%. In the same period, industrial and manufacturing production also did well.
Therefore, the EUR/USD is mostly because of the overall strong dollar. Later today, the pair will react mildly to the latest Eurozone inflation data. Based on the previous estimate, analysts expect this data to show that the headline CPI rose by 4.1% in October. In the past, these numbers tend to have no major impact on the pair.
EUR/USD Forecast
The hourly chart shows that the EUR/USD pair has been in a deep sell-off lately. The pair has moved below the 25-day moving average. Most importantly, it is approaching the second support of the standard pivot points. The money flow index (MFI), which is similar to the RSI, has also moved to the oversold level. Therefore, the pair will likely keep falling as bears target the third support at 1.1220.
