Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0980.
- Add a stop-loss at 1.1100.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1100.
- Add a stop-loss at 1.0975.
The EUR/USD currency pair was flat after the encouraging US consumer inflation data and ahead of the upcoming European Central Bank (ECB) interest rate decision. The pair retested the crucial support level at 1.100, and then pulled back to slightly to 1.1020 ahead of the ECB meeting.
ECB interest rate decision
The EUR/USD pair reacted to the August consumer inflation data. According to the Bureau of Labor Statistics (BLS), the headline Consumer Price Index (CPI) fell to 2.5%, its lowest level in over two years, and in line with what most analysts were expecting.
The core CPI, which excludes the volatile food and energy prices, remained unchanged at 3.2% on an annual basis but rose to 0.3% on a month-on-month basis.
These numbers came a few days after more data showed that the labor market remained soft in August as the unemployment rate fell to 4.2%. According to the BLS, the economy added 112k jobs during the month, a number that should be taken with a grain of salt because of the increasing downward revisions.
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The latest US inflation data means that the Fed will cut rates by 0.25% in its September meeting next week. The US will publish the initial jobless claims and producer price index (PPI) data later on Thursday.
The next key EUR/USD news will be the upcoming ECB decision. Most economists expect the bank to continue cutting interest rates by slashing them by 0.25% to 3.50% to support the economy.
Recent data showed that the bloc’s inflation was nearing the 2% target while the economy is growing at a slow pace. Therefore, another rate cut will make financing more affordable for European consumers and businesses.
EUR/USD technical analysis
The EUR/USD pair has been in a steady downward trend in the past few days after peaking at 1.1200 on August 26. It has dropped by over 1.60% to 1.1020, its lowest swing since August 16.
The pair has moved below the 25-day moving average while the two lines of the Percentage Price Oscillator (PPO) have made a bearish crossover. Also, it has dropped below the 23.6% Fibonacci Retracement level.
Therefore, the pair will likely retest the crucial support at 1.0980, its highest swing in March, and then resume the uptrend. A break and retest pattern is one of the most positive signs in the market.
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