Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0000.
- Add a stop-loss at 1.0300.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0300.
- Add a stop-loss at 1.000.
The EUR/USD exchange rate continued its strong downward momentum, reaching a low of 1.0180, its lowest swing since November 2022. It has been in a strong downtrend after rising to a high of 1.1200 in 2024.
The EUR/USD’s retreat is because of the potential divergence between the Federal Reserve and the European Central Bank (ECB). In the US, the Fed has hinted that it may leave higher interest rates for longer.
The case for a more hawkish Fed increased after the US released strong jobs data on Friday. These numbers revealed that the economy added over 250k jobs, while the unemployment rate dropped to 4.1%. Wage growth continued, albeit at a slower rate than expected.
There are odds that the US inflation will remain higher for longer as the Los Angeles wildfire leads to higher prices. Media reports show landlords have started hiking prices in the state, a situation that will continue. Furniture, household goods and insurance costs will also continue rising.
Inflation will also be impacted by Donald Trump’s policies when he assumes office next week. Some of his policies, if implemented fully, will lead to higher prices in the near term. These policies include mass deportations, tariffs, and tax cuts.
The European Central Bank, on the other hand, anticipates to continue cutting rates to reboot the ailing economy. While recent data has been improving, analysts expect that more cuts will help to supercharge it. Some analysts anticipate that the bank may deliver a jumbo cut of 0.50% later this month.
The EUR/USD pair has dropped as investors wait for the upcoming Trump administration and the potential tariffs on European goods. The new administration will consider a 20% tariff on most imported goods in a bid to boost manufacturing from the US.
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EUR/USD technical analysis
The EUR/USD pair continued its strong downtrend this week and dropped in the last five days. It has moved below crucial support levels, including 1.0455, its lowest swing in October 2023.
The pair has moved to the lower side of the Bollinger Bands, a sign that the bearish momentum is continuing. It has also dropped below the 50-day moving average, while the Money Flow Index (MFI) has moved below 50. Therefore, the pair will likely continue falling as bears target the next key support at parity
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