Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.100.
- Add a stop-loss at 1.1190.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.1140 and a take-profit at 1.1225.
- Add a stop-loss at 1.1050.
The EUR/USD currency pair retreated after the weak European economic numbers, which confirmed that the bloc’s economy was softening. It retreated to a low of 1.1082, down from last week’s high of 1.1187.
The European economy is slowing
Economic numbers released on Monday showed that the bloc was softening, which will trigger more European Central Bank (ECB) rate cuts.
In Germany, the manufacturing PMI dropped from 42.4 in August to 40.3 in September, missing the analysts' estimate of 42.3. The services PMI figure also dropped from 51.2 to 50.6 in the same period.
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These numbers came a few weeks after Volkswagen warned that it would start closing factories in Germany for the first time in decades.
The same trend continued in France, where the manufacturing and services PMIs dropped to 44 and 48.3, respectively.
Altogether, the bloc’s PMI figures fell to 44.8 and 50.5, respectively. These numbers were worse than the median estimate of 45.7 and 52.3, respectively. The composite PMI dropped from 51 to 48.9.
Therefore, there is a risk that the European Union will fail to meet its growth targets for the year, meaning that the ECB will be under pressure to deliver more rate cuts.
The PMI numbers from the United States were better than those in Europe as the composite PMI retreated from 54.6 to 54.4, higher than the expected 54.3.
The next key catalyst for the EUR/USD pair will be the upcoming US consumer confidence data by the Conference Board. Analysts expect the report to show that confidence rose from 103.3 in August to 103.5 as inflation retreated.
These numbers will come a few days after the Federal Reserve slashed interest rates by 0.50%. In multiple statements, Fed officials like Austan Goolsbee, Neel Kashkari, and Raphael Bostic noted that the bank would continue cutting rates in the other upcoming meetings.
EUR/USD technical analysis
The EUR/USD exchange rate formed a double-top pattern around the key resistance point at 1.1187. The neckline of this pattern is at 1.100, its lowest point on September 11. In price action analysis, this is a highly bearish chart pattern.
The pair has moved above the 50-day Exponential Moving Average (EMA) while the MACD indicator has pointed downwards.
Therefore, the pair will likely continue falling because of the double-top pattern. If this happens, the next point to watch will be at 1.1000, its September 11 low. A move above the resistance point at 1.1187 will invalidate the bearish view.
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