Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0650.
- Add a stop-loss at 1.0800.
- Timeline: 1 day.
Bullish view
- Set a buy-stop at 1.0765 and a take-profit at 1.0825.
- Add a stop-loss at 1.0700.
The EUR/USD exchange rate plunged to the lowest level since June as the US dollar index (DXY) and crude oil prices soared. The pair retreated to a low of 1.0718, ~4.7% below the highest level in July.
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US dollar and crude oil price rally
The EUR/USD pair’s sell-off continued its bearish trend as the US dollar index jumped to the highest level in over five months. The greenback has soared by over 5% from the year-to-date low of $99, helped by the strength of the American economy.
This rally happened as investors remained concerned about inflation as the price of crude oil soared. Brent, the global benchmark, rose to $90, the highest level this year.
Crude oil is a key driver of inflation. Therefore, there is a likelihood that the consumer price index (CPI) in the US and Europe held quite steady in July. In the US, inflation rose from 3.0% to 3.2% in July while in Europe, CPI remained above 5%.
In a statement, Philip Lane, the Chief Economist at the European Central Bank (ECB) said that the bank could continue hiking rates in September. Analysts expect that the ECB will hike rates by 0.25% in its September 14th meeting.
The EUR/USD pair will react to several important events on Wednesday. Economists expect that Europe’s retail sales will drop by 0.2% in July. This decline will translate to a 1.2% YoY drop. Retail sales are an important part of the European economy.
The other important data to watch will be the latest ISM non-manufacturing PMI from the United States. Economists polled by Reuters expect to show that the PMI dropped to 52.5 in August. They also see that the S&P services PMI dropped to 51.
EUR/USD technical analysis
The EUR/USD exchange rate has been in a strong bearish trend in the past few weeks. It retreated to a low of 1.0717, which was lower than July’s high of 1.1275. The pair has formed a descending channel shown in green and its price is at the lower side.
Further, the pair has dropped below the 25-period and 50-period moving averages while the MACD has moved below the neutral point. The pair will likely continue falling as sellers target the key support at 1.0650.
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