Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0780.
- Add a stop-loss at 1.0925.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0950.
- Add a stop-loss at 1.0780.
The EUR/USD exchange rate slumped to its lowest point in over two months after the European Central Bank (ECB) slashed interest rates for the third time this year. It dropped to a low of 1.0815, much lower than the year-to-date high of 1.1213.
ECB interest rate cut
The EUR/USD pair slumped to the two-month low of 1.0815 and then bounced back to 1.0867 as traders assessed the next actions by the European Central Bank.
In its decision last week, the bank decided to slash interest rates by 0.25%, citing the need to reboost an economy that seems battered.
Recent economic numbers have painted a picture of an ailing economy, especially in the manufacturing sector, where the PMI has remained below 50 for a while.
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The ECB has also won its battle against inflation. A report released by Eurostat showed that the headline Consumer Price Index (CPI) dropped from 2.2% in August to 1.7% in September, lower than the median estimate of 1.8%.
The core inflation, which excludes the volatile food and energy products, fell from 2.8% to 2.7% and from 0.3% to 0.1% on a month-on-month basis.
Therefore, ECB officials expect the bank to cut rates by another 0.25% in December as inflation is expected to remain near the 2% target in the next few months.
The EUR/USD pair has also dropped because of the rising signs that the Fed will not be extremely dovish as initially feared since the US has published strong economic data. Last Thursday, a report showed that the headline and core retail sales rose by 0.4% and 0.5%, respectively.
The headline Consumer Price Index dropped to 2.4% in September, higher than the median estimate of 2.3%. Also, the labor market is doing better than expected, which explains why US bond yields have risen.
EUR/USD technical analysis
The EUR/USD exchange rate has been in a steep downward trend after rising to the year-to-date high of 1.1213, where it formed a double-top pattern. It has crashed below the key support point at 1.0980, its highest level in March.
The pair has also moved below the 50, 100, and 200-day exponential moving averages (EMA), meaning that bears are in control. Also, the MACD and the Relative Strength Index (RSI) have continued to drop.
Therefore, the pair will likely keep falling as sellers target the ascending trendline that connects the lowest swings since October last year. A break below that point will point to more losses.
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