Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1200.
- Add a stop-loss at 1.1050.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.1115 and a take-profit at 1.1050.
- Add a stop-loss at 1.1200.
The EUR/USD exchange rate continued rising after the European Central Bank (ECB) delivered its second interest rate cut and as the Federal Reserve prepared for its first cut in over four years. It jumped to a high of 1.1125, much higher than last week’s low of 1.1000.
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ECB and Federal Reserve cuts
The EUR/USD pair continued rising after Eurostat published strong wage growth numbers from the European Union. The numbers revealed that wages continued rising in the second quarter, which could make inflation hard to fight. Wages in the eurozone rose by 4.50% while the labor cost index jumped by 4.70%.
These numbers came a few days after the European Central Bank delivered its second consecutive cuts, which it hopes will supercharge the economy. Looking ahead, the Eurostat will release the final reading of August’s inflation data on Wednesday. These numbers will help to set the tone for the next meetings.
The EUR/USD pair rose as the US dollar retreated ahead of the upcoming Fed decision. Most analysts expect the bank to deliver a big 0.50% rate cut because there are signs that the economy is softening.
In a letter to the Fed on Monday, Senator Elizabeth Warren urged the bank to cut interest rates by 0.75%, a move that the Fed will resist. Historically, the Fed delivers such cuts when there is an economic emergency.
Therefore, with the Fed set to deliver its interest rate decision on Wednesday, the upcoming US retail sales report will have no impact on the EUR/USD pair. Analysts expect the data to show that the headline and core sales dropped by 0.6%. Such a drop will likely lead to calls for deeper rate cuts.
EUR/USD technical analysis
The EUR/USD exchange rate bottomed at the psychological point at 1.100 last week and staged a strong comeback after the ECB decision. It jumped and retested the key resistance point at 1.1138 as bulls attempted to recapture last month’s high of 1.1200.
The pair has risen above the 50-day and 100-day Exponential Moving Averages (EMA), which formed a bullish crossover in July. It has also remained above the key resistance point at 1.0980, the upper side of the inverse head and shoulders pattern.
Therefore, the pair will likely continue rising as bulls target the next key resistance point at 1.1200 ahead of Fed decision.
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