Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0960.
- Add a stop-loss at 1.0800.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.0845 and a take-profit at 1.0750.
- Add a stop-loss at 1.0950.
The EUR/USD exchange rate drifted downwards after the European Central Bank (ECB) warned about the banking sector. It also retreated as US mortgage rates and bond yields retreated. It dropped to a low of 1.0852, lower than this month’s high of 1.0965.
US mortgage rates retreat
The EUR/USD price retreated after the ECB warned that banks in the region were showing signs of stress as interest rates remain at the highest point on record. It is seeing a rise in loan defaults and late repayments as companies and individuals struggle to pay their loans.
As a result, the ECB urged companies to add more money to cover rising loan losses. This warning could lead to a deeper slowdown of the European economy. Recent data showed that the European economy contracted in the third quarter while business confidence has slipped.
The pair also retreated as US mortgage rates continued falling. The yield of the 10-year government bonds dropped to 4.41% while the 30-year fell to 4.53%. At the same time, the spread of the 10- and 2-year bond yields crashed to -48 as the yield curve inversion continued.
Mortgage rates have also pulled back. The average mortgage rate for a 30-year fixed loan dropped to 7.29%, down from 7.44% a week earlier. Rates have dropped for four straight weeks as traders reflect on the recent Federal Reserve meeting. On Tuesday, minutes showed that most officials favored a cautious approach when making the next decisions.
The EUR/USD pair will be muted on Thursday since US markets will be closed for Thanksgiving. This means that volume will be lower than average for the rest of the week.
The key data to watch will be the flash manufacturing and services PMI numbers from Europe. Economists expect the data to reveal that the bloc’s PMI remained below 50 in October.
EUR/USD technical analysis
The EUR/USD pair has been in a strong recovery mode recently. This rebound saw it rise to the important resistance at 1.0960 on Friday. This price was crucial since it was the 61.8% Fibonacci Retracement point.
The pair has pulled back and moved slightly above the 50% retracement point. It has also found support at the 50-period moving average. At the same time, the Relative Strength Index (RSI) and Stochastic Oscillator have drifted downwards.
Therefore, the outlook for the pair is still bullish, with the initial target being at 1.0960. A break above this level will validate the bullish view.
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