Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1140.
- Add a stop-loss at 1.0925.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.0980 and a take-profit at 1.0900.
- Add a stop-loss at 1.1115.
The EUR/USD pair continued its recovery as the US dollar index (DXY) and Treasury yields retreated after the US inflation report. The pair has risen for three consecutive days and was hovering at its highest point since December last year.
US Treasuries retreat
The EUR/USD pair rose as the latest US inflation confirmed that the Federal Reserve will start cutting interest rates in the next meeting in September.
A report by the Bureau of Labor Statistics showed that the annual inflation retreated in July. The headline CPI retreated to 2.9% while the core inflation, which excludes the volatile food and energy prices, dropped to 3.2%.
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These numbers, coupled with the rising unemployment rate, mean that the Fed will start slashing interest rates in September.
This view was seen by the performance of the bond market as the 10-year retreated to 3.83% while the 30-year fell to 4.11%. The spread between the 2-year and 10-year narrowed to minus 11.6.
The US dollar index retreated while American indices like the Dow Jones and the S&P 500 continued their strong comeback.
Most prominent banks expect that the rate cut will happen in September. Citi and Wells Fargo expect the bank to cut rates by 0.50% while those at Goldman Sachs, JPMorgan, and Societe Generale anticipate a 0.25% cut.
The EUR/USD pair will react to the upcoming US initial jobless claims, retail sales, Philadelphia and New York Empire State Manufacturing numbers. While these are important leading economic numbers, their impact on the EUR/USD will be limited since the Fed cut has now been priced in.
EUR/USD technical analysis
The EUR/USD exchange rate has been in a strong uptrend in the past few weeks. Most recently, it has risen in the past three consecutive days and moved to the ultimate resistance point of the Murrey Math Lines.
The pair has formed an inverted head and shoulders pattern. It has now moved above the neckline of this pattern, which is a bullish sign. Also, the EUR/USD pair’s rally has been supported by the 50-day moving average.
Therefore, the pair will likely continue rising as traders target the key resistance point at 1.1140, its highest point on December 28 last year, and the extreme overshoot. This view will be confirmed if the pair rises above Wednesday’s high of 1.1045.
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