Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0805.
- Add a stop-loss at 1.0935.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0870 and a take-profit at 1.0925.
- Add a stop-loss at 1.0800.
The EUR/USD pair pulled back ahead of the upcoming German Consumer Price Index (CPI) data and the Federal Reserve’s Beige Book. The exchange rate dropped to 1.0850 on Wednesday morning, down from this week’s high of 1.0890.
Beige Book and German inflation data ahead
The EUR/USD pair dropped after the latest US consumer confidence data. According to the Conference Board, the country’s confidence rose from 97.5 in April to 102 in May, higher than the median estimate of 96.
It was the first monthly improvement in consumer confidence in over three months. These numbers came three days before the US publishes the latest Personal Consumption Expenditure (PCE) report on Friday.
The PCE is an important data that looks at inflation changes across the urban and rural areas and is the closely-watched inflation gauge. Economists expect the figure to show that the headline and core PCE numbers remained above 2% in April.
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The EUR/USD pair retreated after some hawkish statements by Loretta Mester and Neel Kashkari. In their statements, the two officials noted that the Fed would maintain its data-dependence when making its interest rate decision.
As a result, US bond yields rose, with the 10-year Treasury yield rising to 4.51% and the 30-year hitting 4.6%. The US will then publish the Beige Book later on Wednesday.
The next important EUR/USD news to watch will be the upcoming flash German consumer inflation data. Economists expect the report to reveal that the headline Consumer Price Index (CPI) softened from 0.5% to 0.2% in May. On a YoY basis, the figure is expected to move from 2.2% to 2.4%.
These numbers come at a time when most analysts expect that the ECB will start cutting interest rates in its June meeting.
EUR/USD technical analysis
The EUR/USD pair has been in a strong uptrend in the past few weeks. It has jumped from last month’s low of 1.0600 to over 1.0800. Most recently, the pair has formed a double-top pattern at 1.0890 and whose neckline is at 1.0800. Double-top is one of the most bearish signs in the financial market.
The pair has moved between the 61.8% and 78.2% Fibonacci Retracement level. Therefore, the pair will likely continue falling as the ECB and the Federal Reserve diverge. If this happens, the next point to watch will being at 1.0805.
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