Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0700.
- Add a stop-loss at 1.0825.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0800 and a take-profit at 1.0900.
- Add a stop-loss at 1.0700.
The EUR/USD exchange rate formed a small evening star candlestick pattern ahead of the upcoming US and European data dump. It initially rose to a high of 1.0807 on Monday and then pulled back to 1.0787 on Tuesday morning.
US and European data dump
The EUR/USD wavered on Monday after a hawkish statement by Philip Jefferson, the Federal Reserve’s vice chair. In a statement, he reiterated that interest rates should remain in restrictive territory until it gets additional evidence that inflation is moving to the 2% target.
This statement came as the US prepared to publish the latest producer and consumer inflation numbers. Economists expect the PPI report coming out on Tuesday to reveal that the headline prices rose from 2.1% in March to 2.2% in April.
Excluding the volatile food and energy figure, the figure is expected to come in at 2.4%. Historically, the PPI figure tends to have a minimal impact on financial assets like the US dollar and equities.
The key economic data to watch will be the Consumer Price Index (CPI) report scheduled for Wednesday. The consensus view is that the headline CPI rose to 0.4% MoM in April, translating to a YoY increase of 3.4%.
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Economists expect the report to show that core inflation dropped from 3.8% in March to 3.6% in April. On Monday, a report by the New York Federal Reserve showed that inflation expectations remained stubbornly high.
Consumers expect that inflation will be 3.3% a year from now and 2.8% three years from now. The key worries among consumers are rent, gasoline, and medical costs. Therefore, a hotter CPI figure means that the Fed could delay its rate cuts.
The US will then publish its retail sales, housing starts, building permits, and jobless claims on Thursday. At the same time, several Fed officials like Patrick Harker, Loretta Mester, Raphae; Bostic, and Jerome Powell will talk this week.
In Europe, Germany and Spain will publish their inflation figures on Tuesday while France will release them on Wednesday. Eurostat will release the second estimate of Q1 GDP numbers on Wednesday.
EUR/USD technical analysis
The EUR/USD exchange rate formed a small evening star candlestick pattern on the 4H chart. The upper side of this pattern was at 1.0807, near its highest swing on May 3rd. It has formed a double-top pattern whose neckline was at 1.0725, its lowest swing on May 9th.
The pair is also hovering at the 50% Fibonacci Retracement level. It has also remained slightly above the 50-period and 25-period Exponential Moving Averages (EMA). It is also a few points above the first support of Andrew’s pitchfork tool.
Therefore, the pair will likely remain under pressure ahead of the US inflation data. If this happens, the key level to watch will be at 1.0700.
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