Bearish View
- Sell the EUR/USD pair and set a take-profit at 1.0450.
- Add a stop-loss at 1.0670.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 1.0610 and a take-profit at 1.0700.
- Add a stop-loss at 1.0450.
The EUR/USD exchange rate resumed its downtrend after the European Central Bank (ECB) warned about a potential debt crisis and slow growth in the region. It dropped to 1.0520, erasing all the gains made earlier this week.
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The pair’s drop coincided with the release of the European Stability Report, which shows that the central bank was concerned about the potential for another debt crisis unless countries narrowed their budget deficits.
While Italy and France have made progress, the biggest concern is in France, where the budget deficit has continued widening. This explains why the spread between the 10-year bond yields of France and Germany has risen to 0.78%, the widest level in months.
The EUR/USD pair retreated as geopolitical risks rose this week. Joe Biden authorized Ukraine to use American weapons like ATACMS to hit Russian targets. Ukraine has also used UK’s Storm Shadow, meaning that the crisis could accelerate ahead of Trump’s inauguration.
Looking ahead, there will be no major economic data from Europe and the United States on Thursday. The key potential catalyst will be a statement by Philip Lane, ECB’s Chief Economist, which will likely reveal more details on the next actions by the bank.
The US will publish the latest existing home sales data. Economists expect these numbers to show that the sales rose to 3.94 million in October, higher than 3.84 million a month earlier. While important, the report will not have an impact on the pair.
EUR/USD Technical Analysis
The EUR/USD exchange rate continued its downward trend in the past few months. It has plunged by over 6% from its highest level this year.
The pair has formed a death cross pattern as the 200-day and 50-day moving averages. Also, it has formed a break and retest pattern, a popular continuation sign. This retest happened after it moved to 1.0600, its lowest level on April 16.
The MACD and the Relative Strength Index (RSI) indicators have all pointed downwards, which is a sign of more downward momentum.
Therefore, the EUR/USD pair will likely continue falling amid rising geopolitical risks. This view will become more valid if the pair drops below the key support at 1.0497, its lowest level in October last year. The stop-loss of this trade will be at 1.0670.
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