Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0670.
- Add a stop-loss at 1.0755.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0735 and a take-profit at 1.0800.
- Add a stop-loss at 1.0675.
The EUR/USD exchange rate bounced back on Monday and Tuesday ahead of the important US retail sales and industrial production numbers. It rebounded to 1.0725, higher than last Friday’s low of 1.0668.
US retail sales and industrial data ahead
The EUR/USD pair crashed hard last week after the Federal Reserve delivered a somewhat hawkish decision. Shortly after the US released encouraging inflation data, the Fed decided to leave interest rates unchanged. It also pointed to one rate cut this year since inflation remains above its 2% target.
Patrick Harker, the head of the Philadelphia Fed, reiterated this view in a statement on Monday. He said that he believed that one rate cut will be appropriate but only if inflation continued moving downwards.
If the Fed cuts rates this year, it will likely do so in its December meeting because of the upcoming election. Cutting before the election happens will be seen as a way of boosting Joe Biden by the Trump campaign.
The next key data to watch will come out later on Tuesday when the US will publish key numbers like retail sales and industrial production. Economists polled by Reuters believe that retail sales did relatively well in May.
The median estimate is that the headline sales rose by 0.3% in May while the core sales jumped by 0.2%. Retail sales are important numbers that show the strength of the American consumer.
Economists also expect the manufacturing and industrial production numbers to show an improvement in May. The average estimate is that the two numbers rose by 0.3% on a MoM basis.
The EUR/USD pair will also react to the European consumer price index (CPI) data. According to the preliminary report released a few weeks ago, the bloc’s inflation rose from 2.4% in April to 2.8% in May.
These numbers will come a few days after the ECB delivered its first rate cut of the cycle. It is still unclear whether the bank will continue cutting rates this year.
EUR/USD technical analysis
The EUR/USD exchange rate has drifted upwards after it tumbled to a low of 1.0670 on June 14th. It has remained below the 50-period moving average and retested the important Woodie pivot point at 1.0730. It has also retested its lowest swing on June 11th.
The Relative Strength Index (RSI) and the MACD have drifted upwards. I suspect that these gains will be brief and that the pair will resume the downward trend and retest last week’s low of 1.0670. The alternative scenario is where it rebounds to the 50-period moving average at 1.0770.
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