Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1100.
- Add a stop-loss at 1.1320.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.1250 and a take-profit at 1.1300.
- Add a stop-loss at 1.1200.
The EUR/USD exchange rate continued its relentless bull run as bets of an upcoming Fed and ECB divergence continued. The pair soared to a high of 1.1245, the highest level since March last year. As a result, the euro has jumped by double digits from its 2022 lows.
Soft US data
The US has published soft economic numbers this month. The official non-farm payroll (NFP) data rose by 209k jobs in June, the smallest increase in months. This means that the labor market, while still hot, is cooling at a fast pace.
The other closely-watched data was US inflation, which came out last week. According to the statistics agency, the headline consumer price index (CPI) dropped from 4.1% in May to 3.0% in June. Core inflation dropped to 4.8%, signaling that inflation is dropping at a quick rate.
European’s inflation remains significantly higher than the ECB’s target of 2.0%. The most recent Eurostat data revealed that the headline inflation rose by 5.5% in June. Core inflation continued rising, with food prices rising by 11.7%.
Economists expect that the European Central Bank (ECB) and the Federal Reserve will diverge in the coming months. The two banks are expected to hike interest rates by 0.25% this month. The Fed will then pause its hikes as inflation moves close to the 2% target.
The next important catalyst for the EUR/USD pair will be the upcoming Italian consumer inflation data. Based on the last estimates, analysts see the headline CPI dropped from 7.6% to 6.4%. Christine Lagarde, the ECB president, and Philip Lane will speak.
The other catalyst for the EUR/USD pair will be the upcoming US retail sales numbers scheduled for Tuesday.
EUR/USD Technical Analysis
The EUR/USD exchange rate has been in a strong bullish trend in the past few months. On the 4H chart, it has moved above the third resistance level of the Woodie pivot point. The pair moved is at the upper side of the Bollinger Bands. Also, the euro has jumped above the important resistance level at 1.1097 (May 4th high).
The EUR/USD pair’s Relative Strength Index (RSI) and Stochastic Oscillator have moved above the overbought level. Therefore, the pair will likely retreat as some of the buyers take profit. If this happens, the pair will likely retest the next support at 1.1100.
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