Bearish View
- Sell the EUR/USD pair and set a take-profit at 1.0330.
- Add a stop-loss at 1.0620.
- Timeline: 1-5 days.
Bullish View
- Buy the EUR/USD pair and set a take-profit at 1.0650.
- Add a stop-loss at 1.0330.
The EUR/USD notched a second weekly decline in a row after the European Central Bank (ECB) slashed interest rates and the US published the November inflation data on Wednesday. The pair ended the week at 1.0502, 6.2% below the year-to-date high of 1.1215.
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Federal Reserve Decision Ahead
The EUR/USD exchange rate was in the spotlight after the US reported strong inflation data that met analysts estimates. The headline Consumer Price Index (CPI) rose from 2.4% to 2.6%, while the core CPI remained at 3.3%.
Meanwhile, in Europe, the ECB decided to slash interest rates for the fourth time, bringing the cumulative cuts this year to 1%. The Christine Lagarde-led bank also hinted that it will continue cutting them next year.
The ECB is contending with a major deterioration of the economy as key countries like Germany and France struggle. France’s 10-year bond yields rose to 3.05%, the highest level since November 27, while the German 10-year bond yields jumped to 2.25%.
These yields have risen as economic risks in the countries rise amid persistent budget deficits.
The main catalyst for the EUR/USD this week will be the upcoming Federal Reserve interest rate decision on Wednesday. Economists expect the central bank to deliver the third rate cut of the year. If this happens, it will bring the band to between 4.25% and 4.50%.
The Fed is cutting rates primarily because of the labor market, which has shown signs of softening this year. For example, the unemployment rate has risen to 4.2%, while the labor participation rate has dropped.
EUR/USD Weekly Forecast
The weekly chart shows that the EUR/USD pair has been under pressure in the past few weeks. It has dropped and is sitting near the key support level at 1.0446, its lowest point in October last year.
The 50-week and 25-week moving averages have formed a bearish crossover pattern, pointing to more downside. Also, it has formed a bearish flag chart pattern, which is made up of a vertical line and a rectangle pattern.
Therefore, the pair will likely have a strong bearish breakdown, with the next reference level to watch being at 1.0333, its lowest point in November. A break below that level will point to more downside, potentially to 1.0300. A move above the psychological point at 1.0600 will invalidate the bearish view.
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