Bearish view
Sell the EUR/USD pair and set a take-profit at 1.1400.
Add a stop-loss at 1.1650.
Timeline: 1-2 days.
Bullish view
Buy the EUR/USD pair and set a take-profit at 1.1650.
Add a stop-loss at 1.1400.
The EUR/USD exchange rate retreated and then stabilized as the European Union faced numerous headwinds. The pair was trading at 1.1580 on Tuesday, a few pips above the year-to-date low of 1.1500.
European Confidence Drops as Options Market Turns Bearish
The EUR/USD pair remained under pressure on Tuesday as concerns about the European market remained amid the elevated energy prices.
Data released on Monday showed that the Eurozone consumer confidence after three months of consecutive increases. The Sentix index dropped 7.3 points to minus 3.1 in March as the new war in Iran led to substantial challenges in the economy, including soaring oil and natural gas prices.
The falling business confidence in the region explains why traders in the options market have turned the most bearish since the start of the war in Ukraine four years ago.
Analysts believe that the European Union will be one of the most affected economies if the war continues for longer as the bloc relies on crude oil and gas imports from the Middle East.
The EUR/USD pair will react to the new developments in the Middle East. Signs of potential off-ramps will be bullish for the pair. However, signs that the war has a long time to go will lead to more demand for the US dollar, a currency seen as a safe-haven asset.
The pair will also react moderately to the upcoming existing home sales data that comes out on Tuesday. Economists expect the report to show that the sales retreated to 3.90 million in February from 3.91 million in January.
The most important data will come out on Wednesday when the US publishes the latest consumer inflation report. Economists expect the report to show that the headline Consumer Price Index (CPI) rose 2.4% in February, while the core CPI rose 2.5%.
Analysts expect that the soaring energy prices will drive inflation substantially higher in the near term, making it difficult for the Federal Reserve to maintain a hawkish tone.
Worse, there are concerns that the US economy is going through a stagflation, which is characterized by high inflation and slow economic growth.
EUR/USD Technical Analysis
The daily timeframe chart shows that the EUR/USD pair has slumped from the year-to-date high of 1.2080 in January to the current 1.1582. It has dropped below the ascending trendline that connects the lowest swings since August last year.
The pair has also dropped below the 50-day Exponential Moving Average (EMA), a sign that bears are in control. Also, the Relative Strength Index (RSI) and the Percentage Price Oscillator (PPO) have continued falling in the past few months.
Therefore, the pair will likely continue falling in the coming days as sellers target the next key support level at 1.1400. A move above the ascending trendline will invalidate the bearish outlook.