Bearish view
Sell the EUR/USD pair and set a take-profit at 1.1500.
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 1.1500.
The EUR/USD exchange rate slipped last week as investors reacted to the latest European Central Bank (ECB) interest rate decision and US consumer inflation report. It also dipped as crude oil prices jumped amid the ongoing US-Iran war. It fell to 1.1600, a few points below this month’s high of 1.1655.
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Fed Expected to Hike Interest Rates
The EUR/USD pair retreated after the European Central Bank decided to hike interest rates by 25 basis points to curb the elevated inflation. It dropped after this hike because it was in line with what analysts were expecting, meaning that it was already priced in.
Most notably, the ECB warned that inflation will likely remain at an elevated level, meaning that it might need to deliver another hike. Analysts are predicting that the bank will need to deliver another hike this year as Christine Lagarde warned that the current inflation will be longer-lasting.
The EUR/USD pair reacted to the ongoing crisis in the Middle East, where the Houthis made strong progress in its fight against Saudi Arabia. They have now taken Yemen’s coastline raising concerns about the energy market. At the same time, Iraq’s resistance groups launched attacks that pushed Saudi Arabia to shut the East-West pipeline that has been shipping over 7 million barrels of a day.
The next important catalyst for the pair will be the upcoming Federal Reserve interest rate decision on Wednesday. Economists expect the bank to hike interest rates after the US released a strong consumer inflation report. The headline CPI rose 3.4%, while the core CPI rose 0.3% on MoM basis.
Odds that the Fed will hike interest rates jumped on Polymarket and on the CME FedWatch tool since inflation has remained above the 2% target for over five years.
EUR/USD Technical Analysis
The daily chart shows that the EUR/USD pair has come under pressure in the past few days. This retreat happened after it formed a rising wedge pattern, a common bearish reversal pattern in technical analysis. It has now moved slightly below the 50-period Exponential Moving Average (EMA).
The Percentage Price Oscillator (PPO) has moved below the zero line, while the Relative Strength Index (RSI) has drifted downwards. Therefore, the pair will likely continue falling in the near term as sellers target the key support level of 1.1500. This view will be confirmed if it drops below last week’s low of 1.1568.
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