Bullish view
Buy the EUR/USD pair and set a take-profit at 1.1580.
Add a stop-loss at 1.1480.
Timeline: 1-2 days.
Bearish view
Sell the EUR/USD pair and set a take-profit at 1.1480.
Add a stop-loss at 1.1580.
The EUR/USD pair pulled back as the US and Iran maintained their tough talk, which pushed traders back to the dollar. It retreated to 1.1540, down from the year-to-date high of 1.1580, with traders focusing on the upcoming US inflation report.
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US and Iran Maintain their Tough Talk
The US and Iran maintained their tough talk, raising crude oil prices. Brent, the global benchmark, rose to $87, while the West Texas Intermediate (WTI) moved to $82.
On Sunday, Iran announced that it will only reopen the Strait of Hormuz if the US made some major concessions, including paying reparations. In his response on Monday, Trump said that the US would also ask for reparations from Iran. He told Axios that the US was “low-keying” the Iranian situation as he focused on economic sanctions.
These developments mean that the US and Iran will continue their back-and-forth tussle in the foreseeable future, pushing crude oil prices higher. This, in turn, will push inflation higher in the coming months.
The US will publish the latest consumer inflation report on Wednesday. Economists expect the upcoming report to show that inflation rose slightly in July as the US and Iran resumed their kinetic activity, pushing gasoline prices higher. As a result, there are concerns that US interest rates will remain higher for longer. In a statement, Beth Hammack, a Fed official, said that the Fed may decide to hike rates again.
The EUR/USD pair will react to the upcoming US existing home sales report that comes later today. These numbers come a few days after the US published a weak nonfarm payrolls (NFP) data, which showed that the economy lost 23k jobs last month.
The other key data to watch will be the upcoming German and Italian consumer inflation reports on Wednesday.
EUR/USD Technical Analysis
The four-hour chart shows that the EUR/USD pair retreated to 1.1545 on Tuesday, down from last week’s high of 1.1580. It has formed an ascending channel and is now along its lower side.
The pair has remained slightly above the 50-period EMA and the important support level of 1.1481, its highest swing on July 15. Also, the Relative Strength Index (RSI) has continued falling to the current 53.
Therefore, the pair will likely bounce back, potentially to the upper side of the channel of 1.1580. However, a drop below the lower side of the channel will point to more downside in the near term.
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