Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0695.
- Add a stop-loss at 1.0620.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.0645 and a take-profit at 1.0600.
- Add a stop-loss at 1.0700.
The EUR/USD pair stabilized last week even as signs of divergent paths between the Federal Reserve and the European Central Bank (ECB) continued. The pair was trading at 1.0650 on Monday morning, higher than last week’s low of 1.0600.
Fed and ECB divergence
The ECB and the Federal Reserve are set to move in different directions as inflation figures diverge. Most ECB officials who talked last week hinted that they were ready to start cutting rates in the next meetings.
In a statement, Christine Lagarde, the head of the ECB, noted that the bank needed to see more numbers to confirm that inflation was easing. She expects that the bank will cut rates in its next meeting in June if the trend continues.
Other ECB officials like Francois Villeroy de Galhau (France), Joachim Nagel (Germany), and Pierre Wunsch of Belgium all reiterated that the bank will cut rates. Pierre said that only major bad news will prevent the bank from doing that.
The ECB will receive two inflation reports before the next meeting. Eurostat will publish the preliminary inflation report for April next week.
The Federal Reserve, on the other hand, is moving in the opposite direction. Several Fed officials, including Jerome Powell, have hinted that the restrictive policy will last for a while since inflation has remained at an elevated level. The headline CPI rose to 3.5% last month while the core CPI figure remained at 3.8%.
Officials like Raphael Bostic, John Williams, and Michele Bowman have warned that higher interest rates were here to stay.
There will be no economic data from the US and Europe on Monday. As such, traders will focus on Tuesday’s flash manufacturing and services PMI numbers. The other important numbers will be the upcoming US GDP data set for Thursday and the PCE figure that will come out on Friday.
EUR/USD technical analysis
The EUR/USD pair has been in a strong sell-off in the past few months, raising concerns that it could drop to parity. It retreated to a multi-month low of 1.0600 last week and then rebounded to 1.0690.
The pair has remained below the crucial support level at 1.0695, its lowest swing on February 14th. It has also remained below the 50-period Exponential Moving Average (EMA). The pair has formed an inverse cup and handle pattern.
Therefore, the outlook for the pair is bearish in the longer term. For this week, the pair will likely remain in this range as traders wait for the US PCE report on Friday.
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