Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0875.
- Add a stop-loss at 1.1215.
- Timeline : 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1215.
- Add a stop-loss at 1.0875.
The EUR/USD exchange rate crashed to its lowest level since April as the US dollar staged a strong comeback following the first talks between the United States and China. It has dived by over 4.30% from its highest level since April as focus shifts to the upcoming US inflation data.
US and China trade progress
The EUR/USD pair crashed this week as the US Dollar Index (DXY) jumped to $101 and the US stock market soared. The closely-watched Dow Jones Index jumped by over 1,000 points, while the S&P 500 and Nasdaq 100 indices soared by over 3%, their biggest gains in months.
This performance happened after US and Chinese officials met in Switzerland for talks on trade during the weekend. The two sides agreed to continue talking as they cited important progress on talks. They also decided to dramatically reduce tariffs for three months as they work towards a long-lasting agreement.
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The temporary deal is a welcome move as it may help to prevent a recession in the US this year. Together with last week’s deal with the United Kingdom, it also sets a roadmap on what other countries will do to reach an agreement with the US.
The next important catalyst comes later on Tuesday when the US publishes its consumer price index (CPI) data. Economists polled by Reuters expect the data to reveal that the headline CPI rose from minus 0.1% in March to 0.3% in April. It will then remain intact at 2.4% on the year-on-year basis.
The core CPI, which excludes the volatile food and energy prices, is expected to show that prices rose from 0.1% to 0.3% on a MoM basis, and 2.8% on a YoY basis.
EUR/USD technical analysis
The EUR/USD exchange rate has retreated sharply after peaking at 1.1570 in April. It dropped below the key support at 1.1215, the upper side of the cup and handle chart pattern, a popular continuation sign.
It moved below the 25-day Exponential Moving Average, while top oscillators like the MACD and the Relative Strength Index (RSI) have all pointed downwards, a sign that the downward momentum is continuing.
The pair is approaching the 38.2% Fibonacci Retracement level. Therefore, the short-term outlook is bearish, with the next point to watch being the 50% Fibonacci Retracement level at 1.0875. A move above the resistance at 1.1215 will invalidate the bullish outlook.
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