Bearish View
Sell the EUR/USD and set a take-profit at 1.1100.
Add a stop-loss at 1.1400.
Timeline: 1-2 days.
Bullish View
Set a buy-stop at 1.1350 and a take-profit at 1.1500.
Add a stop-loss at 1.1250.
The EUR/USD pair tumbled in the overnight session as investors reflected on the Jerome Powell reappointment. The pair has dropped in the past three straight days and is currently at the lowest level since July 9th 2020. It has declined by more than 8% this year.
Jerome Powell Reappointed
Joe Biden made an important decision on Monday. In a statement, Biden decided to reappoint Powell for his second term as the Fed chair. He will be deputised by Lael Brainard, a Democrat.
Biden was torn between two sides. On the one hand, moderate Democrats were in favour of Powell, a Republican who was first appointed to the Fed by Barack Obama. Most progressives were in favour of Brainard, who they hoped will help boost regulations in the financial sector.
Therefore, the EUR/USD pair declined because analysts expect that the Fed will maintain its policy. In the past decision, the bank decided to maintain interest rates unchanged. The bank also started to tighten its policy by reducing the size of its quantitative easing (QE) policy.
Analysts believe that the Fed will continue tightening as the US economy continues to improve. Data published this week has painted a picture of an economy that has recovered. The labor market has tightened while inflation has jumped to the highest level in more than 30 years.
The situation is different in Europe. While inflation has risen, the region’s unemployment rate is still at elevated levels. At the same time, the new wave of Covid-19 has led many to worry that the economy will underperform in the coming months. Therefore, there is a high probability that the European Central Bank (ECB) will be among the last banks to tighten.
The EUR/USD will react to several important data from Europe. Germany will publish its GDP data while Markit will publish the latest flash manufacturing and services PMI numbers.
EUR/USD Forecast
On the daily chart, we see that the EUR/USD pair has dropped sharply in the past few months. As a result, the pair has dropped below the 61.8% Fibonacci retracement level. The pair has also moved below the 25-day and 50-day moving averages.
Most importantly, it has fallen below the important support levels at 1.1530 and 1.1715, which were the lowest levels in October and March, respectively. Therefore, the pair will likely continue falling with the next key reference level being at 1.1100.
