Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1000.
- Add a stop-loss at 1.1140.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.1055 and a take-profit at 1.1150.
- Add a stop-loss at 1.100
The EUR/USD pair retreated last week after the encouraging US and European consumer inflation numbers. It dropped to 1.1045, down from last month’s high of 1.1192.
US and European inflation data
The Eurostat published encouraging inflation numbers, raising the possibility that the European Central Bank (ECB) will continue cutting interest rates.
According to Eurostat, the headline Consumer Price Index (CPI) dropped from 2.6% in July to 2.2% in August, in line with expectations.
The core CPI also moved in the right direction as it dropped from 2.9% to 2.8% during the month. While inflation remains above the ECB’s 2% target, it is moving in the right direction.
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In Italy, the headline CPI dropped from 1.3% to 1.1% while in France, the CPI fell from 2.3% to 1.9%. Another report showed that the Eurozone’s CPI dropped from 6.5% to 6.4% in July.
Meanwhile, in the United States, the headline Personal Consumption Expenditure (PCE) and core PCE figures remained unchanged at 2.5% and 2.6%, lower than the expected 2.6% and 2.7%. Personal income and spending rose by 0.3% and 0.5%, respectively.
These numbers mean that the Fed will go on with its plan to start cutting interest rates in its next meeting in September.
The next important report will be Friday’s US jobs report, which will show the state of the labor market in the US. Signs that the labor market deteriorate will likely raise optimism that the Fed will cut rates by 0.50% in the next meeting.
EUR/USD technical analysis
The daily chart shows that the EUR/USD exchange rate retreated for three consecutive days as the recent rally lost momentum. This retreat started when the pair jumped to a multi-month high of 1.1200.
The pair has slipped below the key support level at 1.1138, its highest swing in December. It has also found support at the middle line of the Bollinger Bands while the two lines of the MACD have made a bearish crossover. The Relative Strength Index (RSI) is pointing downwards.
Therefore, the pair will likely be muted on Monday because of the US Labor Day holiday. It will then bounce back later this week as traders wait for the non-farm payroll data on Friday. The key support and resistance levels to watch will be at 1.1000 and 1.1140.
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