Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0650.
- Add a stop-loss at 1.0750.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0700 and a take-profit at 1.0750.
- Add a stop-loss at 1.0650.
The EUR/USD pair dropped to a key support level last week as the US dollar index (DXY) bounced back. It crashed to a low of 1.0670, its lowest swing on June 14th as the DXY rose to $105.50, its highest level in weeks.
US dollar strength
The EUR/USD exchange rate retreated sharply after the relatively hawkish statements by several Federal Reserve officials.
In their statements, officials like Raphael Bostic, James Bullard, and Patrick Harker noted that the Fed will maintain its cautious approach when determining when to start cutting interest rates.
These views came a week after the Fed left interest rates unchanged and pointed to just one cut this year. If it happens, it will likely happen in December after the US completes its November election.
The EUR/USD pair also dropped even after the Eurostat released strong inflation numbers. In a report, the agency said that the bloc’s inflation rose to 2.6% in May. That implies that the ECB will be cautious when determining when to slash interest rates. It has already delivered one cut this year.
The EUR/USD pair will likely have a calm week since there are no interest rate decisions and statements by central bank officials. Still, there will be some important economic data to watch this week.
The US will publish the latest consumer confidence report on Tuesday followed by the final estimate of Q1 GDP data on Thursday. It will then release the latest personal consumption expenditure (PCE) report on Friday.
PCE is important data because it is the Fed’s favorite inflation gauge because it considers urban and rural data in its calculation.
There will be other important European data this week, including the preliminary inflation report from Europe. Like the Fed, the ECB has become more data-dependent as it considers when to slash rates.
EUR/USD technical analysis
The EUR/USD formed a rising wedge chart pattern last week and then made a strong bearish breakout. It then crashed to a low of 1.0670, its lowest swing in June. The pair has dropped below the 50-period moving average while the Money Flow Index (MFI) has retreated below the oversold level.
It has also formed a small bearish flag chart pattern. Therefore, the pair will likely have a bearish breakout this week. This crash will be confirmed if it drops below last week’s low of 1.0670.
Ready to trade our daily Forex signal? Check out the best forex brokers in Europe worth using.