Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0750.
- Add a stop-loss at 1.0850.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0830 and a take-profit at 1.0750.
- Add a stop-loss at 1.0900.
The EUR/USD pair was a bit volatile in the overnight session after the Federal Reserve released a hawkish interest rate decision. After initially surging to 1.0850 after the weak US inflation data, the pair pulled back to 1.0800 on Thursday morning.
Federal Reserve decision
The EUR/USD pair was in the spotlight on Thursday after the latest inflation numbers from Germany and the United States.
In Germany, a report by the statistics agency showed that the headline Consumer Price Index (CPI) rose from 2.2% in April to 2.4% in May. This explains why the European Central Bank has hinted that it will be patient before delivering more interest rate cuts.
In the US, a report by the Bureau of Labor Statistics showed that inflation dropped from 0.3% in April to 0.0% in May. It moved from 3.4% to 3.3% on a YoY basis while the core CPI dropped to 3.4%.
The Federal Reserve welcomed the falling inflation but cautioned that it remained significantly higher than its target of 2.0%. Therefore, the bank left rates unchanged between 5.25% and 5.50% and then hinted that it will deliver one rate cut this year.
The Fed is battling a period of stagflation in the US where high inflation is being accompanied by slow economic growth. Recent data showed that the economy expanded by just 1.3% in the first quarter, down from 3.4% in the fourth quarter.
Stagflation is a difficult economic event to deal by the Fed and other central banks because of the unintended consequences. A rate cut to boost the economy could, in theory, lead to more inflation by increasing consumer spending. A hike to slow inflation could slow the economic growth.
There will be no major economic event on Thursday. The only data to watch will be the US PPI data and jobless claims numbers.
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EUR/USD Technical Analysis
The EUR/USD pair has been in a steep sell-off this week because of the recent European parliament election. It dropped to a low of 1.0720 on Wednesday, its lowest swing since May 2nd. It then bounced back sharply after the US inflation data and then retreated after the hawkish Fed decision.
As the pair rose, it formed a break and retest pattern by touching the ascending red trendline that connects the lowest swings since April. Therefore, the pair will likely pull back slightly as sellers target this week’s low at 1.0745.
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