Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0790.
- Add a stop-loss at 1.0685.
- Timeline: 1-2 days
Bearish view
- Set a sell-stop at 1.0720 and a take-profit at 1.0675.
- Add a stop-loss at 1.0790.
The EUR/USD exchange continued its deep sell-off after last Friday’s strong jobs report and as traders waited for the upcoming Federal Reserve decision. The pair tumbled to a low of 1.0720 on Wednesday morning, down from this month’s high of 1.0915.
Federal Reserve and US inflation data ahead
The EUR/USD forecast will be highly volatile as the US publishes the latest inflation data ahead of the upcoming Fed decision. Economists polled by Reuters expect the data to show that the headline Consumer Price Index (CPI) remained unchanged at 3.5% in May.
They also expect that the core CPI moved from 3.6% to 3.5%. On a MoM basis, the figures are expected to come in at 0.1% and 0.3%, respectively. The CPI figure looks at the changes of prices of most items in urban centers in the US.
The numbers will come as the Fed prepares to deliver its interest rate decision. Based on the last guidance, the Fed is not expected to slash interest rates in this meeting. Instead, the committee will provide a dot plot that will show when the rate cuts will start.
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Analysts have a mixed opinion on Fed’s guidance. Some, like those at Standard Chartered, believe that the Fed will cut rates as early as in its June meeting. Others believe that the earliest a rate cut will come is in September since inflation remains stubbornly above the Fed’s target of 2.0% while the labor market is strong.
The other key catalyst for the EUR/USD pair will be statements from several European Central Bank (ECB) officials like Luis de Guindos, the bank’s vice chair, and Elizabeth McCaul. These statements will come a week after the bank delivered a hawkish pause.
EUR/USD technical analysis
The EUR/USD exchange rate has continued its strong sell-off in the past few days. It has slipped for three straight days after the US published strong jobs numbers. The pair has crashed below the key support at 1.0790, its lowest swing on May 30th.
It has also tumbled below the Ichimoku cloud indicator while the 50-period and 100-period moving averages have made a bearish crossover indicator. The Relative Strength Index (RSI) has moved to the oversold level while the Awesome Oscillator has remained below the neutral point.
Therefore, the pair will likely be highly volatile as traders react to the US inflation data and Fed decision. A potential scenario is where it bounces back since the potential for a hawkish Fed has been priced in by market participants. If this happens, the next point to watch will be at 1.0790.
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