Bearish view
Sell the EUR/USD pair and set a take-profit at 1.1350.
Add a stop-loss at 1.1500.
Timeline: 1-2 days.
Bullish view
Buy the EUR/USD pair and set a take-profit at 1.1500.
Add a stop-loss at 1.1350.
The EUR/USD pair continued its strong downward trend, reaching its lowest level since March 26 as the US Dollar Index (DXY) continued its strong rally. It dropped to 1.1425, down by 3.57% from its highest point in April this year.
US Dollar Index Jumps as Demand Soars
The EUR/USD pair continued its retreat as investors continued rotating towards the US dollar. Data shows that the US Dollar Index (DXY) has risen to $101, its highest level since January last year.
It has rallied after the Federal Reserve officials met last week and hinted that they were considering interest rate hikes later this year. A Polymarket poll shows that odds of a rate hike have jumped to 57%.
The pair also retreated after Christine Lagarde said that she saw no need of a major forceful response to the US-Iran war. This was the first statement since the bank decided to hike interest rates by 0.25% to contain inflation. Her statement is a sign that investors don’t expect more rate hikes later this year.
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The next key catalyst for the EUR/USD pair will be the upcoming flash manufacturing and services PMI numbers from the US and Europe. Economists expect the data to show that the Eurozone manufacturing PMI rose to 51.6 in June, while the services one rose slightly to 48.6.
The composite PMI is expected to improve modestly to 49.1. A PMI figure below 50 is a sign that a sector is not doing well. Such a figure may put a cap on ECB interest rate hikes.
S&P Global will also publish the flash US services and manufacturing PMI report. A survey of economists is expected to show that the manufacturing and services PMI rose to 51.7 and 54.6 in June.
EUR/USD Technical Analysis
The daily chart shows that the EUR/USD pair has slumped in the past month, moving from a high of 1.1850 to the current 1.1423. It has dropped to the lowest level since March 13 this year.
The pair has dropped below the Ultimate Support level of the Murrey Math Lines of 1.1474. It has also fallen below the 50-day Exponential Moving Average (EMA), a sign that the downtrend is intact.
The pair has also formed an inverted cup-and-handle pattern, a common continuation sign. Therefore, the path of the least resistance for the pair is downwards, potentially to 1.1350.
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