Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1075.
- Add a stop-loss at 1.1200.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.1145 and a take-profit at 1.1205.
- Add a stop-loss at 1.1075.
The EUR/USD pair pulled back slightly as the market continued to price in a 0.50% rate cut by the Federal Reserve. After rising to 1.1145 on Monday, the pair pulled back to 1.1115 ahead of the closely-watched European inflation data and Federal Reserve rates decision.
The Eurostat will publish the final reading of Europe’s August inflation data on Wednesday. Economists expect the report to show that the headline CPI rose from 0.0% in July to 0.2% in August. On a year-on-year basis, the figure is expected to move from 2.6% to 2.2%. The core CPI, which excludes the volatile food and energy prices, is expected to move from 2.9% to 2.8%.
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While these are important numbers, their impact on the euro will be limited for two main reasons. First, Eurostat already published the preliminary data three weeks ago. In the past, the final report tends to be in line with the flash estimate.
Second, the data will come a week after the European Central Bank delivered its interest rate decision. In it, the bank decided to slash interest rates by 0.25% and hinted that it may deliver more cuts in the last meetings.
The inflation report’s impact will also be limited because the focus will be on the Federal Reserve, which is expected to start cutting rates for the first time since the pandemic started in 2020.
The bank has already telegraphed that a cut is coming. However, it is still unclear the size of the cut the bank will implement. Some analysts expect a small 0.25% cut while others see a jumbo cut of 0.50%. A bigger cut will be a sign that the bank is worried about the state of the economy.
EUR/USD technical analysis
The EUR/USD exchange rate pulled back after climbing to the important resistance point at 1.1145 on Monday. It formed a double-top chart pattern, a popular reversal sign.
The pair has also remained above the 50-period moving average and the key resistance at 1.1076, its 23.6% Fibonacci Retracement point.
Also, the two lines of the MACD indicator have formed a bearish crossover while the Relative Strength Index (RSI) has tilted downwards. The pair will likely retreat and retest the Fibonacci Retracement point at 1.1075. It will then have more volatility after the Fed decision.
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