Bearish View
- Sell the EUR/USD pair and set a take-profit at 1.1800.
- Add a stop-loss at 1.1900.
- Timeline: 1-2 days.
Bullish View
- Add a buy stop at 1.1915 and a take-profit at 1.2050.
- Add a stop-loss at 1.1850.
The EUR/USD pair remained under pressure on Monday as investors continued to react to the latest Federal Reserve decision and the spreading Delta variant. The pair fell to 1.1865, which was the lowest level since April 9. It is also about 3.20% below the highest level this year.
Delta Variant
The European Union has made a lot of strides in its vaccination drive lately. After lagging other Western countries early this year, many countries in the region have accelerated their vaccinations. This trend has pushed economic activity upwards as evidenced by the recent Manufacturing and Services PMI numbers.
However, there are now growing concerns about the Delta variant that has caused havoc in India. Recent statistics shows that the variant has become relatively popular in some European countries like Portugal and Germany. As such, there is a possibility that the bloc’s business activity will start to decline if countries start adding new lockdown measures.
The biggest catalyst for the EUR/USD is last week’s interest rate decision by the Federal Reserve. The bank left interest rates and quantitative easing unchanged. The bank also signaled that it will start hiking interest rates in 2023, ahead of the previous estimate of 2024. As a result, there is also a possibility that the central bank will start tapering its asset purchases later this year.
Today, the EUR/USD will react to a statement by Christine Lagarde, the head of the European Central Bank (ECB). Her statement will be the first since the Fed delivered its decision. Later this week, the pair will be affected by the latest US existing home sales data, flash Manufacturing and Services PMIs, US GDP data, and Sweden’s retail sales numbers. The pair will also react to testimony by Jerome Powell in Congress.
EUR/USD Technical Analysis
The four-hour chart shows that the EUR/USD pair declined sharply last week after the Fed decision. The pair managed to move below the important support at 1.2100, which was the neckline of the head and shoulders pattern. It has also dropped below all moving averages and is along the lower line of the Bollinger Bands. The Relative Strength Index (RSI) has also moved below the oversold level while the MACD has dropped below the neutral level. Therefore, the path of least resistance for the pair is lower, with the next key target being at 1.1800.
