Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0900.
- Add a stop-loss at 1.1050.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.100 and a take-profit at 1.1100.
- Add a stop-loss at 1.0900.
The EUR/USD currency pair continued its recent sell-off as investors embraced a risk-off sentiment in the market. It plunged to a low of 1.0950, its lowest level since August and much lower than the year-to-date high of 1.1215.
US dollar strength continues
The EUR/USD plunged after the relatively weak European economic numbers. According to the German statistics agency factory orders dropped by 5.8% in August after bouncing back by 3.9% in the previous month. The decline was worse than what most analysts were expecting.
The report confirmed that the German economy is going through a difficult phase such that Volkswagen is considering shutting down plants for the first time in decades.
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Another report by Eurostat showed that Europe’s retail sales were weaker than expected in August. The headline sales rose 0.2% on a month-on-month basis and by 0.8% on an annual basis, missing the expected increase of 1.0%.
Therefore, analysts expect that the European Central Bank (ECB) will cut interest rates by either o.25% or 0.50% in its meeting later this month. In a statement on Monday, Francois Villeroy de Galhau, the head of the French central bank, said that the bakwould “quite probably” slash rates.
The Federal Reserve, on the other hand, is expected to be more cautious when it meets next month. Analysts expect the central bank will cut interest rates by 0.25% in the last two meetings of the year instead of 0.50%.
Odds of a less hawkish Federal Reserve rose after the US published strong jobs numbers last Friday. According to the Bureau of Labor Statistics (BLS), the unemployment rate dropped to 4.2% as the economy added over 254k jobs.
The EUR/USD pair will next react to the upcoming US inflation data, Fed minutes, and Israel’s response to Iran’s missile attack.
EUR/USD technical analysis
The EUR/USD exchange rate formed a double-top chart pattern at 1.1200. It has now dropped below this pattern’s neckline at 1.1000.
The pair has also moved to the Ichimoku cloud indicator and crossed the first support of the Woodie pivot point. It has also dropped below the 50-day moving average while the MACD has continued falling.
The Money Flow Index (MFI) has also dropped below 50. Therefore, the path of the least resistance for the pair is bearish, with the next point to watch being at 1.0900, the second support of the Woodie pivot point.
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