Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0945.
- Add a stop-loss at 1.0730.
- Timeline: 1-2 days.
Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0730.
- Add a stop-loss at 1.0950.
The EUR/USD exchange rate rose for two days as the recent US dollar index retreat resumed following the release of the PCE data. It rose to a high of 1.0830 from last week’s low of 1.0730. It has jumped by 6.40% from its lowest level this year.
EU and US trade war ahead
The EUR/USD pair rose even after Donald Trump announced new tariffs on auto imports, a move that will affect the European economy significantly. While the largest European auto companies have large operations in the US, many of them still sell thousands of vehicles from Europe.
Therefore, there is a likelihood that European vehicles brought to the US will be unaffordable to most Americans. For example, Porsche sells most of its vehicles to the US, with all of them being made in Germany.
The situation may worsen this week when Trump launches his reciprocal tariffs on European goods. Europe has historically low tariffs on US goods. However, Trump’s tariffs will also focus on other taxes such as the Value-Added Tax (VAT). European countries argue that the VAT is charged on all goods sold in the country.
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Therefore, the performance of the EUR/USD is a sign that the market expects the US and Europe to reach a deal over time. While Europe has pledged to fight back, officials have come up with offers to the US.
The next key economic numbers to watch this week will be the manufacturing and services PMI numbers from the US and Europe. Also, the US will publish the closely watched nonfarm payrolls data on Friday.
EUR/USD technical analysis
The EUR/USD pair has done well in the past few months as the US dollar index has retreated. It jumped from the year-to-date low of 1.0182 to a high of 1.0946 this month.
The pair has formed a golden cross pattern as the 50-day and 200-day Weighted Moving Averages crossed each other. Also, the pair has formed a cup and handle pattern, with the current price action being the part of the handle section.
The Relative Strength Index (RSI) and the MACD indicators have all pointed upwards, meaning that it is regaining momentum. Therefore, the pair will likely keep rising as bulls target the upper side of the cup at 1.0945. A drop below the support at 1.0730 will invalidate the bearish view
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