Bearish view
- Sell the EUR/USD and set a take-profit at 1.0280.
- Add a stop-loss at 1.0500.
- Timeline: 1-3 days.
Bullish view
- Set a buy-stop at 1.0440 and a take-profit at 1.0515.
- Add a stop-loss at 1.0345.
The EUR/USD made a major bearish breakout last week as investors focused on the weakening of the European economy and the overall bullish US dollar. The pair slumped to a low of 1.0350, which was the lowest level since 2017. A slight decline below this level will push the pair to the lowest level since 2002.
European economy under strain
The European economy has been under serious strain in the past few months because of the situation in Ukraine. The situation worsened last week after Ukraine decided to shut a pipeline that transports natural gas from Russia to Europe.
It then came under pressure after Russia decided to sanction a number of European natural gas companies that receive gas from the country. As a result, the bloc’s gas prices surged and put important industries at risk.
At the same time, the bloc is struggling from an increased shortage of wheat and other industrial metals like steel and aluminum. Therefore, analysts expect that the bloc’s inflation will keep rising in the coming months.
This week, Eurostat will publish a number of important economic numbers that will have an impact on the EUR/USD pair. On Wednesday, the agency will release the latest consumer inflation data. Analysts expect these numbers to reveal that the bloc’s consumer price index rose to 7.5% in April. If they are correct, it will be the highest since records started.
The other key numbers will come on Tuesday, when the agency will release the preliminary GDP and employment change numbers. Economists believe that the economy expanded by 5.0% in the quarter. Christine Lagarde will also deliver a speech, a week after she signaled that that the bank will hike interest rates.
The other key data that will have an impact on the EUR/USD pair will be the American retail sales numbers that will come on Tuesday.
EUR/USD forecast
The EUR/USD pair made a strong bearish breakout last week. At the time, the pair managed to move below the important support at 1.0505, which was the lower side of the horizontal channel. It remains below the 25-day and 50-day moving averages.
Now, it has formed a bearish flag pattern while the Relative Strength Index (RSI) has moved above the oversold level. Therefore, the pair will likely have a bearish breakout and drop to the 20-year low of 1.0280.
