Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0810.
- Add a stop-loss at 1.0700.
- Timeline: 1-2 days.
Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0700.
- Add a stop-loss at 1.0800.
The EUR/USD exchange rate softened this week after another set of economic data from Europe. It retreated to 1.0745, down from last Friday’s high of 1.0811. It remains about 1.35% above the lowest level in April.
Data confirms ECB rate cuts
From an EUR/USD technical daily perspective, the pair remained under pressure as the weak European economic data confirmed that the ECB will move ahead with its rate cuts in June.
A report on Tuesday showed that the German factory orders dropped by 0.4% in March, weaker than the expected growth of 0.4%. Orders had dropped by 0.8% in the previous month.
Another report on Wednesday showed that the country’s industrial production dropped by 0.4% in March. While that was a bigger drop than the expected drop of 0.6%, it was a big reversal from the previous month’s increase of 1.7%.
These numbers came a few days after another report showed that European inflation was moving to its 2% target. Inflation in the bloc has dropped sharply because of the falling natural gas prices, which have tumbled by over 21% this year.
Therefore, the likely outcome is that the ECB will start to cut interest rates in June this year. On Wednesday, the Riksbank became the first major central bank to slash interest rates as its economy continued to deteriorate.
The Federal Reserve, on the other hand, is expected to maintain high interest rates for longer, especially now that there is an election coming up. A rate cut before the election could lead to the accusation that the Fed is becoming political.
Looking ahead, there will be no major economic report on Thursday, meaning that the pair will remain in a tight trading range. The key events to watch will be the country’s initial and continuing jobless claims data. Fed’s Mary Daly will talk and give her views on when the rate cuts will start.
EUR/USD technical analysis
Turning to the 4H chart, the pair rose to the key resistance at 1.0810 after the weak US jobs numbers. This was an important level since it was along the 38.2% retracement level. The pair has now pulled back and found substantial support at the 50-period moving average. It is sitting slightly above the 23.6% retracement point.
Therefore, the outlook for the EUR/USD pair is bullish, with the next point to watch being at 1.0810. A break below the support at 1.0730 will point to more downside.
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