Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0885.
- Add a stop-loss at 1.0750.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.0800 and a take-profit at 1.0700.
- Add a stop-loss at 1.0885.
The EUR/USD pair continued its recent comeback as the dollar index (DXY) sell-off gained steam ahead of the US inflation data. It jumped to a high of 1.0820, its highest level since April 10th. It has soared by over 2.08% from its lowest swing this month.
Fed and ECB divergence
There are signs that the Fed and the ECB will diverge when it comes to interest rate cuts. In a statement on Tuesday, Jerome Powell noted that inflation was taking longer to drop, implying that rates will remain higher for a while.
The most recent US inflation numbers revealed that the headline Consumer Price Index (CPI) number has stopped falling. It has failed to move below the 3% level it reached in June last year as prices of key items like energy, housing, and medical continued rising.
Economists believe that US inflation remained above 3% in April. The median estimate is that the CPI slowed to 3.4% in April from 3.5% in March. They also expect the core CPI to come in at 3.6% down from 3.7%. The US will also publish April’s retail sales and Empire State manufacturing index data.
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Meanwhile, there are signs that European inflation is nearing ECB’s target of 2.0%. A report on Tuesday showed that the German CPI softened to 2.2% in April while the Spanish one rose slightly to 3.3%. France’s inflation also slowed to 2.2% in April.
The ECB has hinted that the first interest rate cut will happen in the next meeting in June unless something drastic happens. As a result, the upcoming European economic numbers will have a minimal impact on the EUR/USD pair.
The key European data to watch on Wednesday will be the upcoming GDP numbers that will confirm that the bloc exited a technical recession in Q1.
EUR/USD technical analysis
The EUR/USD pair continued its bullish trend ahead of the US inflation and retail sales data. It has soared to 1.0820, its highest swing since April 10th.
On the daily chart, it has formed an ascending channel and remained above the 25-day moving average for three straight days. It also jumped above the crucial resistance point at 1.0696, its lowest swing on February 14th.
The Relative Strength Index (RSI) has risen and formed an ascending channel. Therefore, the pair will likely continue rising as buyers target the next psychological point at 1.0885, its highest swing on April 9th.
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