Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0550.
- Add a stop-loss at 1.0695.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0650 and a take-profit at 1.0700.
- Add a stop-loss at 1.0550.
The EUR/USD pair has crashed for five straight days as the US dollar has staged a strong comeback. This sell-off intensified on Monday after the US published strong retail sales numbers and after the weekend attack on Israel. It crashed to a low of 1.0630, its lowest swing since November 3rd.
ECB could cut rates earlier than the Fed
The EUR/USD exchange rate intensified its strong sell-off as traders adjusted their views about the timing of the European Central Bank (ECB) and Federal Reserve. This change of view has intensified after the recent economic numbers from the US and Europe.
In Europe, reports by Eurostat revealed that the bloc’s economy was not doing well, with Germany being stuck in a recession. On the positive side, there are signs that the bloc’s inflation is falling at a faster pace than in the US. Its inflation is approaching the important target of 2.0%.
Therefore, there is a likelihood that the ECB will start cutting interest rates earlier than the Fed. Most analysts expect that the bank will start cutting rates in its June meeting. It was also confirmed by Philip Lane, ECB’s Chief Economist.
Other ECB members have also been positioning for a rate cut. In a statement, Gediminas Simkus, a member of the governing council hinted that the bank will deliver three cuts this year. The same sentiment was repeated by Villeroy de Galhau, the head of the French central bank.
Meanwhile, the US has published mixed economic numbers. On Monday, a report by the Commerce Department showed that the US retail sales continued doing well in March. The headline sales jumped to 1.1% in March from the previous 0.3%. Core sales rose by 1.1%, higher than the median estimate of 0.4%.
The country's labor market is also doing well as the unemployment rate dropped to 3.8% in March as the economy created over 303k jobs. At the same time, inflation has remained stubbornly high, with the core CPI remaining at 3.8%.
Therefore, the expectation is that the Fed will deliver fewer rate cuts than earlier anticipated. Most analysts anticipate one, two, or no cuts this year.
EUR/USD technical analysis
The EUR/USD pair continued its strong freefall as hopes of ECB and Fed divergence continued. On the daily chart, the pair crashed below the crucial support at 1.0695, its lowest swing on February 14th.
Most importantly, the pair is about to form a death cross, where the 50-day and 200-day Exponential Moving Averages (EMA) cross each other. If this happens, it could be a sign that bears are getting in control, which will lead to more downside.
The next point to watch will be at 1.0550. Some analysts believe that the pair will crash to parity as the Fed and ECB continue their divergence.
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