Bearish view
- Sell a sell-stop at 1.0870 and a take-profit at 1.0800.
- Add a stop-loss at 1.0925.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0910.
- Add a stop-loss at 1.0850.
The EUR/USD exchange rate pulled back, ending a strong rally that started earlier this month when it settled at 1.0667. It retreated to a low of 1.0880 on Monday, its lowest point since July 16th.
More ECB rate cuts to come
The EUR/USD suffered a harsh reversal last week after the European Central Bank (ECB) interest rate decision. In it, the committee left interest rates unchanged at 3.75% and welcomed the previous day’s inflation report.
Data by the Eurostat showed that the bloc’s inflation dropped slightly in June. Another survey data showed that ECB officials believe that inflation will remain below 2% in the next two years, a victory for the bank.
Therefore, the ECB has pointed to at least two more interest rate cuts this year, a move that will take them to 3.25%.
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Meanwhile, the Federal Reserve is also expected to start cutting interest rates later this year as inflation continues falling. In statements last week, Federal Reserve officials like Jerome Powell, Christopher Waller, and John Williams noted that the bank was pleased with the last three inflation numbers.
Jay Powell went further, noting that the bank was concerned about the labor market as the unemployment rate rose to 4.1% in June. This rate has been in a slow climb and now sits at its highest level since 2021.
Therefore, the EUR/USD pair will likely remain in a wait-and-see mode ahead of Friday’s Personal Consumption Expenditure (PCE) inflation data. A sign that the PCE, which looks at rural and urban prices, is falling, will increase the odds of rate cuts as soon as in July.
EUR/USD technical analysis
The EUR/USD exchange rate peaked at 1.0950 last week and then resumed the downtrend after the ECB data. It crossed the crucial support level at 1.0915, its highest swing on June 4th.
The pair is consolidating at the 50-period and 25-period Exponential Moving Averages (EMA). Also, the Relative Strength Index (RSI) has moved below the neutral point of 50 while the MACD has pointed downwards.
The EUR/USD pair has also formed a cup and handle pattern, a continuation sign. Therefore, the pair will likely drop to the support at 1.0850 and then resume the uptrend as buyers target the resistance at 1.0915.
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