Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1050.
- Add a stop-loss at 1.1215.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.1200 and a take-profit at 1.1300.
- Add a stop-loss at 1.1050.
The EUR/USD exchange rate remained in a tight range on Monday morning as traders assessed the next actions by the Federal Reserve and the European Central Bank. The pair was trading at 1.1165, a few points below this month’s high of 1.1210.
ECB and Fed next actions
The EUR/USD pair wavered after last Friday’s inflation data from the United States and some European countries like France and Spain.
In France, a report by the country’s statistics agency showed that inflation plunged in September. The headline CPI dropped from 0.5% in August to 1.2% on a month-on-month basis and from 1.8% to 1.2%. The harmonised CPI also fell from 2.2% to 1.5%, lower than the ECB’s target of 2.0%.
These numbers mean that the ECB has an incentive to continue cutting interest rates in the coming meetings. A poll released by the Financial Times showed that most economists expect the bank to deliver a 0.25% cut in October. Some of the analysts in the poll were from companies like Barclays, Deutsche Bank, and BNP Paribas.
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Meanwhile, a separate report from the US showed that the personal consumption expenditure (PCE) inflation figure dropped from 2.5% to 2.2% in August, missing the analysts’ estimate of 2.3%. Core inflation also dropped from 0.2% to 0.1% on a month-on-month basis.
The PCE is an important figure that looks at price changes in urban and rural areas and is the Fed’s preferred inflation gauge.
In a statement, St Louis Fed president, Alberto Musalem, said that the Fed should opt for gradual rate cuts to prevent inflation from bouncing back.
The key catalyst for the EUR/USD pair will be the upcoming US jobs numbers. ADP will publish the latest private payrolls report on Wednesday while the Bureau of Labor Statistics (BLS) will release the official figures on Friday.
EUR/USD technical analysis
The EUR/USD exchange rate has bounced back in the past few weeks as the US dollar index retreated. It rose and peaked at the important resistance point at 1.1200, where it has formed a small double-top chart pattern, a popular bearish sign.
The pair has remained above the 50-day and 25-day Exponential Moving Averages (EMA) and the key resistance point at 1.1140, its highest point in December last year. It also remains above the ascending trendline that connects the lowest swings since October last year.
Therefore, because of the double-top pattern and the rising geopolitical risks in the Middle East, the pair will likely pull back and retest the 50 EMA at 1.1040. A break above the double-top level at 1.1200 will point to more upside.
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