Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0900.
- Add a stop-loss at 1.0800.
- Timeline: 1-2 days.
Bearish view
- Set a bearish trade and add a take-profit at 1.0800.
- Add a stop-loss at 1.0925.
The EUR/USD pair was stuck in a range as traders focused on this week’s US PCE inflation report and the upcoming ECB interest rate decision. The pair was trading at 1.0857 on Tuesday, a few pips above last week’s low of 1.0805.
US PCE and ECB rate decision
The EUR/USD pair will likely have a muted performance this week, with no major economic numbers, and because of Monday’s US and UK public holidays.
The only important economic report will come out on Friday when the US publishes the latest personal consumption expenditure (PCE) inflation report. This crucial economic number shows inflation in the US urban and rural areas and is the one that the Federal Reserve puts more emphasis on.
Economists expect the report to show that the headline PCE inflation index dropped from 0.3% to 0.2% in April. They also see the core PCE figure coming in at 0.3%. On a YoY basis, economists expect the data to reveal that the PCE and core PCE figures dropped to 2.5% and 2.7%, respectively.
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Still, whether these numbers will change the Fed’s view of the economy and the next actions is unclear. Most analysts agree that the bank will leave rates unchanged in its June meeting but are divided on when the first cut will happen.
Analysts at JPMorgan and Goldman Sachs have ruled out Fed rate cuts any time soon since inflation has remained above the 2.0% target.
Meanwhile, the European Central Bank (ECB) is expected to start cutting interest rates on June 6th. In a statement on Monday, Philip Lane, the Chief Economist, the bank will slash rates unless a big event happens.
One of these events could be this week’s flash European inflation numbers. A bigger number than the expected headline 2.5% and core Consumer Price Index (CPI) 2.7% could shift the bank’s view on the bank’s view on interest rate cuts.
EUR/USD technical analysis
The EUR/USD exchange rate has been tight in the past few days as the focus shifts to the important PCE data and ECB decision. It has rebounded above the crucial support level at 1.0805, its lowest swing on May 24th.
The pair has also crossed the 25-period and 50-period Exponential Moving Averages (EMA). Also, the MACD oscillator has just crossed the zero line while the Relative Strength Index (RSI) is pointing upwards. Therefore, the pair will likely remain in this range on Tuesday. The key level to watch will be this month’s high of 1.0895.
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