Bearish view
- Sell the EUR/USD pair and set a take-profit at 0.9850.
- Add a stop-loss at 1.0050.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0045 and a take-profit at 1.010.
- Add a stop-loss at 0.9950.
The EUR/USD exchange rate came under more selling pressure on Monday morning as the European economic situation worsened. The pair dropped to a low of 0.9950 after Russia announced an indefinite closure of the Nord Stream 1 pipeline.
European recession now guaranteed
The EUR/USD price continued falling after Russia announced an indefinite closure of the important Nord Stream 1 pipeline. The announcement came after Gazprom closed it for maintenance. Analysts believe that the decision was in line with Europe’s decision to cap the price of Russian oil in the international market.
Analysts were expecting that Russia will stop supplying Europe with gas towards the winter season. Therefore, the current shutdown came earlier than what they were expecting. As such, risks that the European economy will sink into a recession.
For one, recent data showed that the bloc’s inflation surged to an all-time high of 9.1% in August of this year. This situation will keep getting worse. At the same time, there is evidence that many companies in the bloc are starting to slow their activities.
Still, many European countries have continued boosting their natural gas storage and procuring it from other countries. This gas from countries like Qatar and Australia is nonetheless much expensive than that from Russia. High prices has also incentivized many people and companies to reduce their gas consumption.
It is against this backdrop that the European Central Bank (ECB) will conduct its meeting this week and deliver its decision on Thursday. Analysts expect that the bank will hike interest rates by another 50 basis points for the second straight month. Therefore, it is unclear whether high-interest rates will help to slow inflation.
The EUR/USD price will react to the latest services PMI data from European countries. Economists expect that services output slipped during the month.
EUR/USD forecast
The four-hour chart shows that the EUR/USD pair has been in a tight range in the past few days. It has remained at the parity level since the third week of August. The pair has dropped below the 25-day and 50-day moving averages. The slow and fast stochastic oscillators have pointed downwards.
Therefore, because of the inverted cup and shoulders pattern, the pair will likely have a bearish breakout as the dollar strength continues. If this happens, the next key support level to watch will be at 0.9850. A move above the resistance at 1.0050 will invalidate the bearish view.
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