Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0750.
- Add a stop-loss at 1.0880.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0835 and a take-profit at 1.0900.
- Add a stop-loss at 1.0775.
The EUR/USD pair continued dropping after the relatively hawkish Federal Reserve minutes published on Wednesday. It also retreated after the strong German wage growth. It dropped to 1.0820 from last Friday’s high of 1.0896.
US and European PMI numbers
The Federal Reserve published relatively hawkish minutes, which showed that most officials were concerned about inflation. At the time, all economic numbers showed that inflation has remained stuck above the Fed’s target of 2.0%.
As a result, the committee considered hiking interest rates in the last meeting but ruled against it because the economy was slowing. Therefore, the key takeaway of these minutes is that the Fed will likely maintain rates higher for longer.
This is the same view that most Fed officials have expressed in recent statements. Raphael Bostic has signaled that he believes that cuts should start to happen in the fourth quarter. Other officials like Loretta Mester and Christopher Waller have said that the bank will be data-dependent.
The EUR/USD also reacted to warning signs about European inflation. A report from Germany revealed that wage growth surged at the fastest pace in almost a decade. They rose by 6.2% in the first quarter from 3.6% in Q4.
Therefore, economists estimate that the bloc’s wage growth by 4.7% in Q1 from 4.5% in the last quarter. Higher wage growth leads to stickier inflation. Other data showed that Europe’s energy prices have jumped to the highest point in four months. There are fears that Russia will cut gas supplies to Austria.
Therefore, lingering inflation fears mean that the European Central Bank (ECB) may change its tune about its next interest rate cut. Most economists expect the bank to start cutting rates in its June meeting.
EUR/USD technical analysis
The EUR/USD pair has made a strong bearish breakout after the hawkish Federal Reserve minutes. It dropped below the Woodie pivot point at 1.0850 and the 25-period and 50-period Exponential Moving Averages.
It has also formed a small double-top pattern while the Relative Strength Index (RSI) and the Stochastic Oscillator have pointed downwards. Further, it has crashed below the neckline of the double-top pattern at 1.0835.
Therefore, the outlook for the pair is bearish, with the next point to watch being at 1.0750, which is a few points above the second support of the Woodie pivot point.
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