Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0522.
- Add a stop-loss at 1.0350.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.0420 and a take-profit at 1.0350.
- Add a stop-loss at 1.0500.
The remarkable EUR/USD sell-off accelerated as volatility in the financial market spread. The pair dropped to a low of 1.0430, which was the lowest point since May 17th. It has been in a strong sell-off since the ECB decision on Thursday last week.
Market volatility surges
The EUR/USD pair declined sharply as the strength of the US dollar conntinued. The dollar index surged by over 0.72% while the closely watched CBOE volatility index rose by over 20%.
At the same time, the stock market continued falling, with the Dow Jones falling by more than 700 points. This means that the blue-chip index has fallen by more than 1,800 points in the past three trading days. The S&P 500, Nasdaq 100, and Russell 2,000 have also plummeted.
The main catalyst for the EUR/USD sell-off is the fact that the American labor market has tightened while consumer inflation has surged. The unemployment rate is hovering near its record low while the overall rate of inflation has surged to the highest level since 1981.
Therefore, analysts believe that the Federal Reserve will be more hawkish in its battle against inflation. Most analysts believe that the Fed will hike by 0.50% on Wednesday. Some expect that the bank will surprise the market by hiking rates by 0.75%.
The EUR/USD pair will react to the latest consumer inflation data from Germany. Analysts believe that the country’s consumer inflation rose to 7.9% in May while the harmomised inflation rose to 8.7%. If accurate, these will be the highest point in decades,
Another important data will be the Euro area industrial production data. Analysts expect the data to show that the sector declined in April as the cost of doing business jumped.
EUR/USD forecast
The EUR/USD pair continued its bearish trend as the dollar strength continued. The pair dropped to a low of 1.0420, which was significantly lower than its month-to-date high. It has moved to the lower side of the Bollinger Bands. The pair moved below the 25-day moving average while the Stochastic Oscillator moved below the oversold level.
The pair will likely have a relief rally as bulls target the key resistance level at 1.0522. In the longer term, the pair will likely resume the bearish trend ahead of the Fed decision.
