Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1050.
- Add a stop-loss at 1.1200.
- Timeline: 1-3 days.
Bullish view
- Set a buy-stop at 1.1125 and a take-profit at 1.1200.
- Add a stop-loss at 1.1050.
The EUR/USD exchange rate pulled back sharply as the recent rally faded ahead of key European and US economic data. It retreated by over 0.60% from this week’s high of .1.1200 to 1.1117.
Key economic data ahead
The EUR/USD may show some volatiliy in the next two market days after the US and Europe release important economic data.
On Thursday, several European countries like Spain and Germany will release their preliminary August inflation data.
In Spain, economists expect the numbers to show that the headline CPI dropped from 2.8% in July to 2.4% in August. The harmonized CPI is also expected to retreat from 2.9% to 2.50%.
In Germany, the biggest economy in Europe, the headline CPI is expected to drop from 2.3% to 2.1% while the harmonized figure moved from 2.6% to 2.3%.
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If these estimates are accurate, they will mean that the European inflation was moving in the right direction, putting more pressure on the European Central Bank (ECB) to cut rates in the next meeting.
The other important EUR/USD data will be the August European business and consumer confidence data. Consumer confidence is expected to move from minus 13 in July to minus 13.4 in August.
Meanwhile, in the US, the Bureau of Economic Analysis (BEA) will release the second-quarter GDP data. The previous estimate showed that the economy expanded by 2.8% in Q2 from 1.4% in Q1.
The US will also publish the latest initial and continuing jobless data. While these numbers are important, the key number to watch will be Friday’s personal consumption expenditure (PCE) inflation report. The PCE is a report that measures the change in prices of products and services in both rural and urban areas.
EUR/USD technical analysis
The EUR/USD exchange rate pulled back from this week’s high of 1.1200 to a low of 1.1115 as the recent rally took a breather. It dropped below the key support level at 1.1138, its highest swing in December, and the upper side of the cup and handle chart pattern. Therefore, this retreat is likely part of the hammer section.
The pair has remained above the 50-day moving average while the Relative Strength Index (RSI), which measures the speed of change, has moved from the overbought point of 75 to 61.
Therefore, the pair will likely remain in this range for a while as traders focus on next week’s US nonfarm payroll (NFP) data, which will help to determine the size of the Fed’s rate cut in September.
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