Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0800.
- Add a stop-loss at 1.0975.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0945 and a take-profit at 1.1025.
- Add a stop-loss at 1.0845.
The EUR/USD pair dropped sharply on Monday and Tuesday morning as the US dollar index continued rising. The pair dropped to a low of 1.0910, the lowest point since April 12, which was ~1.35% below the highest level this year.
Euro rally takes a breather
The EUR/USD pair has been in a strong bullish trend in the past few months, which has seen it jump by more than 10%. This rally happened as investors priced in a likely Fed pivot after the bank took the most aggressive tone in the past few months.
The pair also jumped as investors reacted to the overall European economic strength in the first quarter. The economy held quite well as challenges that were expected in Q1 failed to happen. For example, the consensus view was that the bloc’s energy prices would surge during the quarter.
The EUR/USD price has drifted downwards in the past two days after a hawkish statement by a Fed official. In an interview on Friday, Fed’s Christopher Waller said that the bank would maintain a hawkish tone in a bid to fight the elevated inflation.
Data published last week showed that headline inflation dropped to 5.0% while core inflation jumped to 5.6%. Inflation expectations have also recently as gasoline prices have remained above $3.3.
There was no major economic data on Monday. The most important one was a survey by Bloomberg, which found that most economists expect that the European Central Bank will maintain an aggressive tone.
These analysts expect that the bank will deliver three 0.25% hikes in the next three meetings, which will push rates to 3.75%. This will be the most aggressive tone in history considering that the ECB has already delivered numerous rate hikes.
EUR/USD forecast
The EUR/USD pair has been in a strong bearish trend in the past few days. As it dropped, the pair moved below the 23.6% Fibonacci Retracement level. It has also moved below the 50-period moving average and the important support at 1.0974, the highest point on April 4. The Relative Strength Index is yet to get to the oversold level of 30.
Therefore, the pair will likely continue falling for now as sellers target the 50% retracement point at 1.0800. It will likely resume the bullish trend later this week.
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