Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0890.
- Add a stop-loss at 1.0820.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.0830 and a take-profit at 1.0795.
- Add a stop-loss at 1.0900.
The EUR/USD exchange rate’s recent sell-off stalled on Wednesday after the relatively weak European and US economic data. It was trading at 1.0850, a few points above this week’s low of 1.0825.
Weak European and US economic data
The EUR/USD pair wavered after S&P Global published weak European and US manufacturing and services PMI numbers. In Europe, the manufacturing PMI retreated from 45.8 in June to 45.6 in July, missing the expected increase of 46. A PMI number of lower than 50 is a sign that an industry is contracting.
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The bloc’s services PMI dropped from 52.8 in June to 51.9, missing the expected 52.9. As a result, the composite PMI moved from 50.9 to 50.1. These numbers mean that the European economy is slowing, which could pressure the European Central Bank (ECB) to continue cutting interest rates.
Elsewhere, in the United States, the report showed that the manufacturing PMI moved from the expansion zone of 51.6 in June to 49.5 in July. On the positive side, the services PMI rose from 54.8 to 55, higher than the expected 54.2.
Another report revealed that the US new home sales dropped from 621,000 in May to 617,000 in June, missing the expected 639,000.
Looking ahead, the EUR/USD pair will have a busy period in the next two days as the US is set to publish more economic data that could impact actions of the Federal Reserve.
The Bureau of Economic Analysis (BEA) will publish the first estimate of US GDP data. Economists see the data to show that the economy expanded by 2.0% in Q2 after growing by 1.4% in Q1.
The other important data to watch will come out on Friday when the US publishes the latest Personal Consumption Expenditure (PCE) report. A sign that the core PCE is falling will raise the odds of Fed rate cuts.
EUR/USD technical analysis
The EUR/UDSD exchange rate has pulled back sharply from this month’s high of 1.0950 to a low of 1.0825. On the 4H chart, the pair has dropped below the important support level at 1.0915, its highest swing on June 4th. The pair has also moved below the 50-period Exponential Moving Average (EMA).
On the positive side, the current retreat is part of the formation of the handle section of the cup and handle pattern. In most cases, this is one of the most bullish signs in trading. It also formed a morning star pattern on Wednesday.
Therefore, the pair will likely bounce back as buyers target the key resistance point at 1.0875, the 50-period moving average. A drop below Wednesday’s low will point to more downside.
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