Bearish view
Sell the EUR/USD pair and set a take-profit at 1.1400.
Add a stop-loss at 1.1600.
Timeline: 1-2 days.
Bullish view
Buy the EUR/USD pair and set a take-profit at 1.1600.
Add a stop-loss at 1.1400.
The EUR/USD pair dropped to a crucial support level at 1.1500 on Tuesday as traders waited for the upcoming European Central Bank (ECB) decision and the US consumer inflation data. It has dropped by over 2.6% from its highest point in May.
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ECB Interest Rate Decision and US Inflation Data
The EUR/USD pair has been in a strong downward trend in the past few days. This sell-off gained momentum after three key jobs reports from the United States last week.
The first report came out on Tuesday when the Bureau of Labor Statistics (BLS) showed that the number of job vacancies jumped by over 700k in April this year.
Another report by ADP revealed that the private sector created 122k jobs in May. Also, the BLS showed that the economy created 172k jobs in May. These numbers mean that the economy is doing relatively well despite the ongoing war.
The pair also retreated because of the ongoing crisis in the Middle East, where Iran and Israel launched attacks during the weekend. This fighting ended after President Donald Trump’s intervention, but there is a risk that the fighting will resume.
The other key catalyst for the EUR/USD pair will come out on Wednesday when the US publishes the latest consumer inflation report. Economists believe that the headline CPI rose 4.2% in May, higher than the Fed’s target of 2.0%. As a result, the Federal Reserve may opt to hike interest rates by 0.25% later this year.
The EUR/USD pair will also react to the upcoming European Central Bank (ECB) on Thursday this week. Economists expect that the bank will hike interest rates by 0.25% as it fights against the rising inflation.
EUR/USD Technical Analysis
The daily chart shows that the EUR/USD pair has crashed in the past few days. It has already slipped below the key support level at 1.1578, its lowest point on May 21 this year.
The pair has dropped below the 50-day Exponential Moving Average (EMA). Also, the Relative Strength Index (RSI) and the Stochastic Oscillator continued falling.
The pair has remained below the Ichimoku cloud indicator. Therefore, the most likely scenario is where the pair continues falling, potentially to the next psychological level at 1.1400. A move above the key resistance at 1.1578 will invalidate the bearish outlook.
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