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The EUR/USD exchange rate has been in a strong bearish trend in the past few months as the US and European recoveries converge.
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- Sell the EUR/USD pair and set a take-profit at 1.0600.
- Add a stop-loss at 1.0765.
- Timeline: 1-2 days.
- Buy the EUR/USD pair and set a take-profit at 1.0770.
- Add a stop-loss at 1.0650.
The EUR/USD pair sell-off gained steam ahead of a relatively busy week in the market. The pair was trading at 1.0700, the lowest level since June 8th. It has retreated by over 5% from the highest point in July as the US dollar index (DXY) soared to a five-month high.
The EUR/USD will have several important events this week. The first important news will come out on Wednesday when the US will publish the latest inflation data. Economists polled by Reuters expect the data to show that inflation remained above the Fed’s 2.0% target.
They believe that the headline consumer price index (CPI) rose from 3.2% in July to 3.4% in August. If this prediction is accurate, it will be the second straight month that the country’s inflation rose.
They expect that the core CPI will drop from 4.7% in July to 4.3% in August. The core CPI is watched closely because it strips food and energy prices, which tend to be highly volatile from month to month.
The other EUR/USD news will be the price of crude oil. Brent and West Texas Intermediate (WTI) have risen to a multi-month high after soaring by more than 20% from the lowest level in June. Higher prices will likely fuel higher inflation in the US and in Europe.
The European Central Bank (ECB) will start its meeting on Wednesday and deliver its decision on Thursday. This decision will come at a time when the European economy is slowing dramatically.
Data published last week showed that Germany contracted in the second quarter. Its industrial production fell again in July as woes in the auto sector continued. Therefore, analysts expect the Fed will leave interest rates unchanged at 3.75%.
The EUR/USD exchange rate has been in a strong bearish trend in the past few months as the US and European recoveries converge. It has moved to a low of 1.0700, which is the lowest level in months. This price is also along the lower side of the descending channel shown in green.
The pair has moved below the 25-period volume-weighted moving average (VWMA) while the stochastic RSI has drifted downwards. Therefore, the outlook for the pair is bearish, with the next level to watch being at 1.0600. This view will be confirmed if the price moves below the lower side of the channel.
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