Relief Rally to 1.0850 Likely

The EUR/USD pair dropped to a low of 1.0715 on Friday. 

• Buy the EUR/USD pair and set a take-profit at 1.0850.
• Add a stop-loss at 1.0700.
• Timeline: 1-2 days.

• Set a sell-stop at 1.0715 and a take-profit at 1.0625.
• Add a stop-loss at 1.0850.

The EUR/USD exchange rate pulled back sharply on Friday as concerns about the banking sector resumed. It dropped to a low of 1.0715, the lowest level since Wednesday and much lower than last week’s high of 1.0928.

The EUR/USD pair recoiled sharply last Friday as demand for safe havens rose. That happened as concerns about the health of European banks resumed. Most banks, led by Deutsche Bank, saw their stocks drop by over 55 on Friday as their Credit Default Swaps (CDSs) surged to their highest level in months. A CDS is a credit derivative providing a buyer with an insurance policy against critical risks like bankruptcy.

The pair also dropped as concerns about the French economy continued. France, the second-biggest economy in the European Union, has seen some of its biggest protests in the past few weeks. The protests are about Emmanuel Macron’s policy of rising the retirement age from 62 to 64. Analysts believe that the country’s economy will struggle.

There will be no major economic data from the US and the European Union on Monday. The only data to watch will be from Germany, where the ifo Institute will publish the latest business confidence data. Economists polled by Reuters expect that the business climate dropped slightly from 91.1 to 90.0. The current assessment is expected to come in at 94.1.

While these numbers are important, their impact on the EUR/USD pair will be limited. Instead, investors will continue watching the performance of banking stocks. The other key data will be the US consumer confidence figure scheduled for Tuesday.

The EUR/USD pair dropped to a low of 1.0715 on Friday. As it dropped, it moved below the important support level at 1.0760, the highest point on March 15. The pair is between the 50-period and 25-period exponential moving averages (EMA).

At the same time, the MACD and the signal line have made a bearish crossover pattern while the histogram has moved below the neutral point. The Stochastic Oscillator has moved below the overbought level.

The pair will likely have a relief rally as buyers target the next key resistance point at 1.0850. In the medium term, the pair will likely resume the bearish trend to 1.0600.