Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0900.
- Add a stop-loss at 1.0765.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.0815 and a take-profit at 1.0765.
- Add a stop-loss at 1.0900.
The EUR/USD exchange rate continued rising this week after Sunday’s French election. It has risen for five straight days and is sitting at its highest point since June 12th ahead of a key statement by Jerome Powell.
Jay Powell statement
The EUR/USD pair continued rising after an election in France left the country in unchartered territory as the parliament became divided into three blocs. Left-wing parties won in major places, dealing a blow to both Emmanuel Macron and the far right.
Therefore, traders are still assessing the implications of the election on the economy and the overall governance. For one, any left-wing coalition will be reluctant to deliver the spending cuts Emmanuel Macron has advocated for the past few years.
The pair also rose as traders assessed the next Federal Reserve actions after a series of economic data showed that the economy was slowing. Two reports by the Institute of Supply Management (ISM) showed that the manufacturing and non-manufacturing PMIs moved to a contraction zone in June.
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Another report released on Friday revealed that the labor market was softening as the unemployment rate rose to 4.1% in June from the previous 3.9%. The rate rose even after the economy added over 202k jobs during the month.
Since then, analysts have changed their view about the next Fed action. Those at ING Bank and Citi expect that the bank could start slashing rates as soon as in its meeting in September. Mohamed El Erian, the head economist at Allianz, has also warned that now was the time to cut rates.
Therefore, Jerome Powell’s testimony which will start on Tuesday will shed light on what the bank expects. The pair will also react to the upcoming US inflation data that will provide more information on whether prices are falling.
EUR/USD technical analysis
The EUR/USD pair has bounced back after bottoming at 1.0665 last week. This was an important level since it coincided with the ascending trendline that connects its lowest swings since October last year.
The pair has moved slightly above the 25-day and 50-day exponential moving averages (EMA), which is a bullish sign. It is nearing the upper the upper side of the descending trendline.
The Relative Strength Index (RSI and the momentum indicator have pointed upwards. Therefore, more upside will be confirmed if the price moves above the upper side of the triangle pattern. If this happens, the next point to watch will be at 1.0900. The alternative is where it retests the descending trendline and then resumes the downward trend.
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