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Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0848.
- Add a stop-loss at 1.0975.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0935 and a take-profit at 1.1012.
- Add a stop-loss at 1.0835.
The forex market in the American and Asian sessions was characterized by a stronger dollar as central bank officials delivered their remarks at the ECB Summit in Portugal. The EUR/USD exchange rate slipped to 1.0896, lower than this month’s high of 1.1012.
Central banks are still hawkish
Central bank officials, including the Bank of Japan governor, hinted that the tightening process will continue for a while. In his statement, Jerome Powell said that while monetary policy was restrictive, it was not restrictive enough. He cited the fact that America’s inflation remains at an elevated level despite the recent retreats.
The most recent data showed that the American inflation dropped to 4.0% in May while core inflation slipped to 5.5%. These figures are still above the bank’s target of 2.0%. And while the Fed has tightened its policies recently, there are signs that the economy is doing well. Retail sales held steady while consumer confidence jumped in June. Most importantly, the housing market has done well as demand remains elevated.
In her statement, Christine Lagarde also hinted that the ECB was not done hiking. She noted that the bank’s officials were not seeing any tangible evidence of slowing inflation. The most recent data revealed that the Eurozone inflation slowed to 6.1% in May.
We will be watching several important economic data from the US and Europe on Thursday. While these numbers are important, their impact on the EUR/USD pair will be limited since the Fed and the ECB have already hinted that they will hike rates.
The key data to watch will be US GDP numbers for the first quarter. Historically, the third estimate of the GDP has a minimal impact on the US dollar. The other data to watch will be the upcoming German and Spanish inflation data.
EUR/USD technical analysis
The EUR/USD exchange rate erased gains made on Wednesday after the hawkish statements by central bank officials. On the 4H chart, the pair has formed what looks like a head and shoulders pattern. It has also moved slightly below the 25-period and 50-period moving averages while the Stochastic Oscillator has pointed downwards.
Therefore, because of the H&S pattern, the outlook for the pair is bearish, with the next support level being at 1.0848, the lowest swing on June 23rd.
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