Bearish view
Sell the EUR/USD pair and set a take-profit at 1.1470.
Add a stop-loss at 1.1625.
Timeline: 1-2 days.
Bullish view
Buy the EUR/USD pair and set a take-profit at 1.1625.
Add a stop-loss at 1.1470.
The EUR/USD pair retreated sharply after the Federal Reserve delivered its first interest rate decision under Kevin Warsh and after the US published strong retail sales numbers. It retreated to 1.1550, down modestly from this week’s high of 1.1625.
Hawkish Federal Reserve and Strong Retail Sales Data
The EUR/USD pair has three key moving parts this week. First, and most importantly, Federal Reserve officials voted to leave interest rates unchanged in the first meeting under Warsh. Still, nine FOMC members said that interest rates will need to go up this year, a move that will infuriate President Donald Trump.
These officials are pointing to the rising consumer inflation and the fact that the US economy is doing relatively well for their hawkish view. Recent data showed that the headline consumer inflation jumped 4.2% in May, while the Producer Price Index (PPI) soared 6.5% during the month.
Another report showed that the US economy was still adding jobs. According to the Bureau of Labor Statistics (BLS), it added over 172k jobs in April, higher than the median estimate of 85k.
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The EUR/USD pair retreated after the US released strong retail sales report, which may help to justify the hawkish view. This report showed that the country’s retail sales rose 0.9% in May after growing by a downwardly revised 0.4% in April. The sales were better than the expected 0.5%.
The pair is also rising as odds of a US-Iran deal start falling, with many Republicans and Democrats blasting it. Some of Trump’s top allies are arguing that any deal with Iran will need congressional vote. If this happens, there is a likelihood that it will be voted down, a move that may lead to a prolonged shutdown of the Strait of Hormuz.
EUR/USD Technical Analysis
The EUR/USD pair has pulled back in the past few weeks, forming a descending channel pattern. It has moved below the middle line of the Bollinger Bands and the 50-day moving average.
The Relative Strength Index (RSI) has also continued falling, forming a similar descending channel. Therefore, the most likely scenario is where it continues falling, potentially to the lower side of the channel at 1.1470.
On the other hand, a move above the upper side of the channel will be a sign that bulls have prevailed. If this happens, the pair will jump to the upper side of the Bollinger Bands at 1.1680.
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