Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0900.
- Add a stop-loss at 1.1033.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.1000 and a take-profit at 1.1050.
- Add a stop-loss at 1.0900.
The EUR/USD exchange rate dropped on Monday and early Tuesday after the collapse of First Republic Bank and after the latest US manufacturing PMI data. It dropped to a low of 1.0964, which was lower than last month’s high of 1.1095.
Fed decision ahead
The biggest news this week is the collapse of First Republic Bank, the second-biggest bank failure in the US after Washington Mutual. The company was seized by the FDIC on Monday and then sold to JP Morgan, the biggest bank in the US.
Worse, analysts believe that some more regional banks could collapse in the coming months. A key reason for this is that many of them have an exposure to the commercial real estate sector which is going through a rough patch. The sector is struggling with high-interest rates, low occupancy rates, and an upcoming wave of maturities.
Therefore, there is a likelihood that the Fed will embrace a cautious tone in this week’s meeting. It could do that by leaving interest rates unchanged or by hiking rates by 0.25% and then pointing to a strategic pause in the coming meetings.
Recent data from the US has also shown that the American economy is slowing. On Monday, the ISM manufacturing PMI figure showed that the sector notched another monthly contraction in April. It came,e in at 47.1 in March, marking the deepest contraction since 2009. This happened as new orders remained depressed while future demand wavered.
The key EUR/USD news for Tuesday will be from Europe. Eurostat will publish the latest flash consumer inflation data for April. Economists expect these numbers to show that the headline consumer price index (CPI) rose to 7.0% in April while core CPI remained unchanged at 5.7%. These numbers will come as the ECB prepares another rate hike for Thursday.
EUR/USD technical analysis
The EUR/USD pair moved downwards as focus remained solidly on the upcoming Fed and ECB decisions. It failed to move above the key resistance point at 1.1031, the highest point in February. It also moved slightly below the lower side of the ascending channel and the 50-period moving average.
This is a sign that bulls are struggling to retest the upper side of the channel. It has also moved to the 23.6% Fibonacci Retracement level. Therefore, there is a likelihood that the pair will have a bearish breakout as sellers target the 38.2% Fibonacci retracement point at 1.0880.
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