Bearish view
Sell the EUR/USD pair and set a take-profit at 1.1250.
Add a stop-loss at 1.1425.
Timeline: 1-2 days.
Bullish view
Buy the EUR/USD pair and set a take-profit at 1.1425.
Add a stop-loss at 1.1250.
The EUR/USD exchange rate continued its strong downward trend this week, reaching its lowest level in over a year as the falling crude oil prices reduces the urgency for the Federal Reserve to hike interest rates. It dropped to 1.1350, down by 6% from its highest level this year.
Euro Retreats Amid Falling Crude Oil Prices
The euro continued its strong downward momentum amid the ongoing falling oil prices. Brent, the global benchmark, dropped to $73, while the West Texas Intermediate (WTI) moved below the key support level of $70.
Oil prices have fallen as the US and Iran teams have continued negotiating in Switzerland, and as the number of ships crossing the Strait of Hormuz continued rising. Millions of barrels have started crossing, which comes at a time when demand destruction has happened.
The implication of the falling oil, fertilizer, and transport prices is that the European Central Bank (ECB) will not have the urgency to hike interest rates later this year. Besides, officials have already delivered the first rate hike to contain the elevated inflation.
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The EUR/USD pair has also plunged because of the ongoing US Dollar Index (DXY) surge. The dollar index rose to $101.2, the highest level in over a year. It has soared by most developed and emerging market currencies after the Federal Reserve hinted that it will hike interest rates by 0.25% later this year.
The EUR/USD pair will have some major catalysts today, including the US GDP, personal income and spending, and PCE numbers. Economists polled by Reuters expect the data to show that the headline PCE rose by 4.0% in May from the previous 3.8%. Core inflation, which excludes the volatile food and energy products, is expected to come in at 3.4%
A higher-than-expected inflation report will push the Fed to hike interest rates later this year, widening the spread between US and European bond yields.
EUR/USD Technical Analysis
The EUR/USD pair has been in a strong downward trend this month as the US dollar rally gained steam. It has moved below the lower side of the descending channel and the crucial support level of 1.1408, its lowest level on March 13.
The pair has also moved to the lower side of the Bollinger Bands, while the Relative Strength Index (RSI) has continued falling, reaching its lowest level on March 13. Therefore, the pair will likely continue falling as sellers target the key support level of 1.1250.
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