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Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0750.
- Add a stop-loss at 1.0900.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0835 and a take-profit at 1.0935.
- Add a stop-loss at 1.0750.
The EUR/USD pair was flat on Monday and Tuesday morning amid rising concerns about the European economy. The exchange rate was trading at 1.0810, a few points above last week’s low of 1.0761.
Signs of European slowdown continuing
There are signs that the European economy is slowing as internal and external demand slows. A report by the European Central Bank (ECB) showed that money supply in the region dropped for the first time since 2010.
The figure dropped as lending in the region dries because of the rising interest rates. Like the Federal Reserve, the ECB has continually hiked rates and pushed them to the highest level in two decades.
The falling money supply is an important indicator that the economy will continue slowing in the coming months. It also means that the ECB could decide to pause its interest rate hikes in the next meeting in September.
ECB hawks argue that more rate hikes are necessary to fight inflation, which stands at 5.3%. The ECB has a target inflation rate of 2.0%. Therefore, this week’s flash inflation data will have an impact on the next decisions by the bank.
The US, on the other hand, is doing well, with the Atlanta Fed expecting the economy to expand by 6% in the third quarter. Recent numbers on wages, inflation, and retail sales showed that demand remains strong.
The Conference Board will publish the closely watched consumer confidence data later on Tuesday. Economists expect the data to show that confidence remained significantly high in August as inflation slipped.
The other data to watch will be the upcoming US JOLTs job vacancies and house price index (HPI). These numbers will come a few days after Jerome Powell hinted that the Fed could hike in September.
EUR/USD technical analysis
The EUR/USD exchange rate has been in a consolidation phase in the past two days and is hovering at the lowest level since June. The pair was trading at 1.0800, down from the month-to-date high of 1.1063. It has formed a descending channel and it remains below the 50-period moving average.
The euro is also below the three lines of the William Alligator indicator, signaling that bears are still in control. Therefore, the pair will likely continue falling as sellers target the key support at 1.0750.
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