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Bearish View
- Sell EUR/USD and set a take-profit at 1.0353.
- Add a stop-loss at 1.04600.
- Timeline: 1 day.
Bullish View
- Set a buy-stop at 1.0446 and a take-profit at 1.0500.
- Add a stop-loss at 1.0380.
The EUR/USD price is hovering near its lowest level since May 16th as investors focused on the upcoming Fed decision and the hawkish ECB. It is trading at 1.0423, which is slightly above this month’s low of 1.040.
FOMC Decision Ahead
The EUR/USD pair maintained its bearish momentum as the US bond sell-off continued. The yield of the 10-year Treasury bonds rose to 3.45% while the 2-year rose to 3.41%. This is a sign that investors are now pricing in a more aggressive Federal Reserve.
The bond sell-off coincided with another decline in American equities. The Dow Jones erased another 150 points on Tuesday, a day after it dropped by over 800 points. The S&P 500 index remains in a deep bear territory, meaning that it has fallen by 20% from its YTD high.
Based on the Fed’s estimates, most analysts now believe that the bank will hike rates by 0.50% and commit to its quantitative tightening policy. But economists at companies like Barclays and Goldman Sachs now believe that a 0.75% hike is possible.
Before the FOMC, the EUR/USD will react mildly to the upcoming US retail sales data. Analysts believe that sales remained under pressure as inflation remained at elevated levels. This is an important figure since consumer spending is the biggest part of the American economy.
The EUR/USD is also under pressure after the relatively strong European inflation data. On Tuesday, data from Sweden and Germany showed that inflation remained at elevated levels in May. Later today, France is also expected to publish high inflation data.
These numbers reinforce the case that the ECB will also start hiking rates in its July meeting. Some analysts even expect it to move before the official meeting.
EUR/USD Forecast
The EUR/USD pair has been in a strong bearish trend in the past few weeks. The sell-off continued even after the hawkish interest rate decision by the ECB. It also accelerated after the pair dropped below the important support at 1.0630, which was the lowest level since June 1.
The pair has also dropped below the 25-day and 50-day moving averages while the RSI has continued falling. Therefore, the pair will likely continue falling as bears target the key support at 1.0353, which is the lower side of the inverted cup and handle pattern.
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