Bearish view
Sell the EUR/USD pair and set a take-profit at 1.100.
Add a stop-loss at 1.1250.
Timeline: 1-2 days.
Bullish view
Buy the EUR/USD pair and set a take-profit at 1.1250.
Add a stop-loss at 1.1000.
The EUR/USD pair continued its strong downward trend this week, reaching its lowest level since May last year. It has slumped in the last six consecutive weeks and is now down by over 8% from the year-to-date high.
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US Consumer Inflation and Kevin Warsh Statement
The EUR/USD pair continued its strong sell-off this week after the US published the latest consumer inflation report. This report showed that the headline and core consumer price index rose 3.7% and 2.6%, in September, higher than what analysts were expecting. These numbers moved further away from the Fed’s target of 2.0%.
The report raised the possibility that the Federal Reserve will hike interest rates later this year. Most analysts expect the bank to leave them unchanged in its meeting later this month, and then hike in its December meeting.
The Fed is facing major challenges. While inflation has remained above the 2% target, there are signs that the labor market is softening. Data released earlier this month showed that the economy created just 29k jobs last month, much lower than the expected 90k.
The next important catalyst for the EUR/USD pair will be key macro data from the United States. It will release the latest Producer Price Index (PPI) report, which is an important inflation gauge.
In addition to this, the US will publish the latest retail sales and the Philadelphia Fed manufacturing index. These numbers will provide more hints on what the Federal Reserve will do in the next meetings.
Most importantly, market participants will react to the upcoming statement from Kevin Warsh, the Fed Chair. This will be an important speech since it will be the first one since the US published its inflation report.
EUR/USD Technical Analysis
The weekly chart shows that the EUR/USD pair has been in a strong sell-off. It has dropped below the important support level of 1.1327, its lowest level on June 22nd.
The pair has dropped to the 50% Fibonacci Retracement level. It has moved below the 50-week Exponential Moving Average (EMA) and is along the 50% Fibonacci Retracement level.
The relative Strength Index (RSI) has formed a descending channel and is approaching the oversold level. Therefore, the pair will likely continue falling, potentially to 1.100 as traders react to the rising odds that the Fed will hike interest rates later this year.
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