Bearish view
- Sell the EUR/USD and set a take-profit at 0.9900.
- Add a stop-loss at 1.0050.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0035 and a take-profit at 1.0100.
- Add a stop-loss at 0.9950.
The EUR/USD price dropped to a new two-decade low as concerns about the European economy. After falling to a low of 0.9898, the pair rebounded slightly to above parity after the relatively weak economic data from the United States.
Concerns about Europe
The EUR/USD price retreated below parity as investors worried about the European economy. Data published by S&P showed that manufacturing PMI in Germany, France, and Italy remained below the expansion zone of 50.
The European composite PMI declined from 49.8 to 49.7, which was slightly higher than the median estimate of 49.0. These numbers showed that the bloc’s output is falling at a relatively fast pace as companies see low demand and high cost of doing business.
The situation in Europe will likely get worse in the coming months. For one, the energy situation is still uncertain considering that the crisis in Ukraine is escalating. Russia plans to halt gas supplies to Europe later this week for maintenance.
Another report published on Tuesday showed that half of Europe is facing a drought. As a result, there are concerns about the cost of food in the coming months. In addition, low water levels in key rivers is having an impact on power generation and river transport.
Therefore, the EUR/USD pair declined sharply as investors continued to price in a situation where the European Central Bank (ECB) slows its tightening process.
Meanwhile, data published in the United States was not encouraging as well. New home sales declined by 12.6% to 511k in July this year. This decline happened as the Fed continued hiking interest rates. Other housing data like pending and existing home sales have all declined sharply recently. Therefore, the Fed will likely slow its rate increases in a bid to prevent a hard landing.
EUR/USD forecast
The EUR/USD pair dropped sharply as concerns about the European economy continued. It reached a low of 0.9898 and then pulled back slightly. Still, it remains below the 25-day and 50-day moving averages and the dots of the parabolic SAR. The MACD moved below the neutral point and is at the lowest level since July 14.
Therefore, the pair will likely continue falling as sellers target the next key support level at 0.9900. A move above the resistance level at 1.0055 will invalidate the bearish view.
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