The EUR/USD pair will next react to the latest ISM manufacturing PMI data.
- Sell the EUR/USD pair and add a take-profit at 1.0500.
- Add a stop-loss at 1.0660.
- Timeline: 1-2 days.
- Set a buy-stop at 1.0650 and a take-profit at 1.0750.
- Add a stop-loss at 1.0550.
The EUR/USD pair pulled back on the first day of the month after mixed economic numbers from the United States and Europe. In all, the most liquid forex major crashed by over 4% from its highest level in February as the US dollar index (DXY) made a spectacular comeback.
Consumer confidence in the US declined in February as the cost of living crisis in the country gained steam. Data compiled by Conference Board revealed that confidence dropped from 106 in January to 102.9 in February. That was a disappointing figure considering that analysts were expecting it to rise to 108.50. C
Consumer confidence is an important figure because of the crucial role that consumer spending has on the economy. It is the biggest constituent of the economy and highly confident consumers tend to spend more and vice versa.
The US also published mild housing numbers. The house price index dropped by 0.1% in December, which translated to a year-on-year gain of 6.6%. On Monday, data showed that pending home sales jumped sharply in January. Therefore, there is a consensus among market participants that the Fed will deliver at least two more hikes this year.
The EUR/USD pair will next react to the latest ISM manufacturing PMI data. Economists expect the data to show that the PMI rose from 47.4 in January to 48 in February. This means that the manufacturing sector is still struggling.
The other important data to watch will be the European manufacturing PMI numbers and the German unemployment rate. Economists believe that the country’s jobless rate remained unchanged at 5.5% in February. These numbers will not change the consensus view that the European Central Bank (ECB) will hike interest rate by 0.50% in March.
The EUR/USD pair has formed a descending channel that is indicated in black. On Tuesday, it managed to test the upper side of this channel and then pulled back. It retreated to the Woodie pivot point, which is at the middle part of the channel. The downside is supported by the 50-day moving average while the MACD has formed a bullish divergent pattern.
Therefore, it seems like bears will prevail, with the next key level to watch being at 1.0535 (Feb low) followed by 1.0500. The latter is the lower side of the descending channel.