Bearish view
- Sell the EUR/USD pair and set a take-profit at 0.9900.
- Add a stop-loss at 1.0050.
- Timeline: 1 day.
Bullish view
- Set a buy-stop at 1.0030 and a take-profit at 1.0100.
- Add a stop-loss at 0.9950.
The EUR/USD price bounced back as the market shifted their focus to the upcoming interest rate decision by the European Central Bank (ECB). The pair moved above the parity level of 1.00, which was about 1.36% from the lowest level this week.
ECB interest rate decision
The ECB will conclude its two-day meeting on Thursday. Analysts believe that the bank will continue hiking interest rates as it fights the soaring inflation. According to Bloomberg, most analysts believe that the bank will hike rates by 75 basis points, the biggest increase in more than two decades. Other analysts expect that it will hike by 0.50%.
The meeting comes at a difficult time for the European economy. Early this week, data from Germany revealed that factory orders crashed for the sixth straight month. Additional data showed that retail sales and manufacturing and services PMIs continued declining.
Energy is the biggest concern in Europe. During the weekend, Russia announced that it will stop gas flows to Europe until further notice. Putin’s administration has said that it will resume gas flows to Europe when sanctions are removed. As a result, European gas prices have soared to record highs.
Therefore, the EUR/USD has dropped recently as investors wait for a recession in Europe as high-interest rates converge with surging energy prices. In a statement to Bloomberg, ECB’s Martin Kazaks noted that a protracted recession could slow the pace of rate hikes.
In addition to the ECB decision, the pair will react to a statement by Jerome Powell. It will be his first rate hike since his extremely hawkish one at the Jackson Hole Symposium. Analysts expect that he will continue increasing rates in the coming months. The base case is that it will deliver the third straight 0.75% rate hike.
EUR/USD forecast
The EUR/USD pair has been in a tight range recently. After falling to a low of 0.9866 on Tuesday, the pair bounced back to the parity level in the overnight session. As it rose, it moved above the important resistance level at 0.9954, which was the lowest level on July 14. It also moved slightly above the 25-day moving average and the standard pivot point.
A closer look shows that it has formed a small head and shoulders pattern. Therefore, there is a likelihood that the pair will resume the bearish trend after the ECB decision. If this happens, the next key support to watch will be at 0.9900.
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