Bullish View
- Buy the EUR/USD pair and set a take-profit at 1.0480.
- Add a stop-loss at 1.0375.
- Timeline: 1-2 days.
Bearish View
- Set a sell-stop at 1.0400 and a take-profit at 1.0350.
- Add a stop-loss at 1.04600.
The EUR/USD volatility rose after last Friday’s strong Eurozone consumer inflation data. The pair dropped to a low of 1.0366, which was the lowest level since June 15th of this year. It remains about 3.3% below the highest level in June this year.
European Inflation Surging
The EUR/USD pair saw elevated levels of volatility after Eurostat published the latest consumer inflation data on Friday. The numbers revealed that the bloc’s inflation soared to a record high in June as the cost of energy remained at an elevated level.
The headline consumer inflation data surge to 8.6% in June from 8.1% in May of this year. This increase was higher than the median estimate of 8.5%. Countries like France, Italy, and Spain published record inflation numbers during the week. At the same time, inflation in Germany declined slightly due to fuel tax cuts and public transport discounts, which are temporary.
These numbers came a few days after the European Commission said that consumer confidence has dropped sharply in the past few months. At the same time, many companies in the bloc like Zalando, Volkswagen, and BMW have reported a sharp decline in sales in the past few quarters.
Therefore, the ECB is in a difficult situation as it faces criticism of letting inflation surge substantially above the target of 2.0%. Analysts expect that the bank will deliver its first interest rate hike in over a decade this month. The base case is that the bank will hike by 0.25% although many analysts expect it to hike by 0.50%.
There will be several important economic data from Europe on Monday. Germany will publish the latest trade numbers while Eurostat will deliver the latest producer price index (PPI) data from the region. Analysts expect the data to show that producer inflation surged to 36.7% in June.
EUR/USD Forecast
The four-hour chart shows that the EUR/USD pair made a strong bearish breakout last week. As this happened, the pair formed a hammer pattern, which is usually a bullish sign. The pair is slightly below the important leve at 1.0450, which was the lowest level on June 17th. It is also below the 25-day and 50-day moving averages.
Therefore, because of the hammer pattern, the pair will likely continue rising as bulls target the key resistance level at 1.0480. A drop below the support at 1.0385 will invalidate the bullish view.
