Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.000.
- Add a stop-loss at 0.9750.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 0.9800 and a take-profit at 0.9700.
- Add a stop-loss at 0.9900.
The EUR/USD price continued recovering as investors refocused on the upcoming interest rate decision by the European Central Bank (ECB). It rose to a high of 0.9860, which was the highest level since Tuesday last week
US dollar retreats
The EUR/USD made its first weekly gain in three weeks as the US dollar retreated. The US dollar index, which measures the performance of the currency against a basket of currencies, dropped to about $112, which was significantly lower than this month's high of over $115.
The US dollar retreated after the US published relatively weak building permits, housing starts, and new home sales data. It also declined as American stocks staged a comeback and the CBOE Volatility Index (VIX) retreated.
Focus now shifts to the upcoming European Central Bank (ECB) interest rate decision scheduled on Thursday this week. Analysts expect that the bank will hike interest rates by another 75 basis points in a bid to fight the rising inflation.
Data published last week showed that the headline consumer price index (CPI) rose to 10.9% in September, which was the highest level since Eurostat started publishing data. Core inflation also continued rising as the cost of most items remained at an elevated level.
Meanwhile, European leaders announced a major package to help small and medium enterprises to deal with inflation. They will spend about 40 billion euros to support companies in the region. On Sunday, Giorgia Meloni became the new Italian prime minister, officially taking over from Mario Draghi.
The key economic data to watch on Monday will be the flash manufacturing and services PMI numbers by S&P Global. In the US, analysts expect the data to show that services PMI dropped from 49.3 in September to 49.2 in October.
They expect that the manufacturing PMI dropped slightly to 51. On the other hand, in Europe, analysts expect that services PMI fell to 48.2. A PMI figure of 50 and below is a sign that a sector is contracting.
EUR/USD forecast
The EUR/USD price recovered on Friday after dropping to a weekly low of 0.9706. It has moved above the ascending trendline shown in green while the current price is an important one since it was its lowest level on September 6. The price is also slightly below the upper side of the Bollinger Bands while the Relative Strength Index (RSI) has moved above the neutral point.
Therefore, the pair will likely keep rising as bulls target the key resistance point at parity ahead of the ECB decision and US consumer confidence data. This will be confirmed if it moves above the resistance at 0.9870.
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