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Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.045.
- Add a stop-loss at 1.0600.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0570 and a take-profit at 1.0650.
- Add a stop-loss at 1.0500.
The bond market turmoil resumed on Wednesday as energy prices jumped. This rebound pushed the US dollar index (DXY) higher and the EUR/USD exchange downwards. The pair slipped to a low of 1.0525, lower than this month’s high of1.0600.
Inflation fears elevated
Market participants are increasingly worried about the state of the global economy as the war between Israel and Hamas rages. These fears accelerated after a hospital bombing led to more than 500 deaths.
In the aftermath, Iran, a leading player in the energy industry, announced that it would support an embargo of oil to Israel. It is unclear whether other Middle East countries will cut oil flows to the country.
Crude oil prices jumped, with Brent soaring to $92 and West Texas Intermediate (WTI) nearing $90. The implication of this is that gasoline prices will bounce back in the coming weeks, leading to higher inflation. The 30-year bond yield soared to 4.90%, the highest point in 16 years.
Still, it is unclear whether the stubbornly high inflation will lead to more tightening in the US and Europe. In a statement on Wednesday, Patrick Harker, a key Fed official said that he supported continuing the pause.
Harker is concerned that more Fed hikes will have a negative impact on the economy, which is already showing signs of slowing down.
The EUR/USD pair reacted to the relatively robust US housing numbers. Data revealed that the country’s building permits dropped to 1.43 million, better than the expected 1.45 million. Housing starts rose by 7% to 1.35 million.
The next important news to watch will be the upcoming US existing home sales data, which will provide more color about the sector. Economists expect the data to show that sales dropped slightly to 3.89 million.
The most important catalyst will be a statement by Jerome Powell, the Federal Reserve chair. He will likely provide more information about the state of the economy and what to expect.
EUR/USD technical analysis
The EUR/USD exchange rate has moved sideways in the past few days. On the 4H chart, it has formed a broadening wedge pattern, which is a bearish sign. It has retested the lower side of this pattern and slipped below the 50-period moving average. The Relative Strength Index (RSI) has moved below the neutral point.
Therefore, the pair will likely have a bearish breakout in the coming days. If this happens, bears will start to eye the next psychological level at 1.045. The alternative scenario is where they retests this week’s high of 1.0600.
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