Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1000.
- Add a stop-loss at 1.1205.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1205.
- Add a stop-loss at 1.1000.
The EUR/USD currency pair pulled back as economic data showed that Europe’s inflation was falling faster than expected. It retreated 1.1115, down by a few pips from last month’s high of 1.1205, as the focus shifted to the upcoming European inflation data and US PMI numbers.
European inflation ahead
There are rising odds that European inflation continued slipping in September. According to the German statistics agency, the headline consumer price index (CPI) retreated to 1.8% in the year to September.
The CPI moved to its lowest point since February 2021 and is below the European Central Bank (ECB) target of 2.0%.
Other large European countries like Spain and France have published similar numbers. Therefore, analysts expect Tuesday’s data to show that the headline CPI dropped from 2.2% in August to 1.9% in September, while the core CPI fell from 2.8% to 2.7%.
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Therefore, these numbers mean that the European Central Bank (ECB) may continue cutting rates in this month’s meeting. Besides, there are signs that the bloc’s economy was slowing and facing structural issues. In a recent note, economists at IFO downgraded the German economy, predicting that it would contract by 0.1% this year.
The EUR/USD exchange rate also retreated after Jay Powell, the head of the Federal Reserve said that he was growing more confident that the economy was heading towards a soft landing. He also expects interest rates will continue falling over time towards a level that sustains growth.
Looking ahead, the Institute of Supply Management (ISM) will publish the latest manufacturing PMI numbers, which will provide more information about the economy. Analysts expect the PMI figure to show that the manufacturing sector continued to contract in September.
The other important data to watch is JOLT's job openings report, which will provide more information about the labor market.
EUR/USD technical analysis
The EUR/USD pair retreated slightly ahead of the upcoming US and European inflation data. It moved from last month’s high of 1.1205 to 1.1125, the strong pivot and reverse point of the Murrey Math Lines.
The pair remained above the 50-day moving average. However, it has formed a double-top chart pattern, a popular bearish sign. Also, the Percentage Price Oscillator (PPO) has formed a bearish divergence pattern.
Therefore, the pair will likely have a bearish breakout as traders target the psychological point at 1.100.
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