Bearish view
Sell the EUR/USD pair and set a take-profit at 1.1000.
Add a stop-loss at 1.1385.
Timeline: 1-3 days.
Bullish view
Buy the EUR/USD pair and set a take-profit at 1.1385.
Add a stop-loss at 1.1000.
The EUR/USD pair remained under pressure on Tuesday morning as concerns about the European economy accelerated. It dropped to a 17-month low, continuing a downward trend that started in August when it peaked at 1.1710.
Fears of a European Debt Crisis Rise
The EUR/USD pair continued its strong sell-off as concerns about the European economy accelerated. In Spain, Prime Minister Pedro Sanchez has called for a new election on November 29 after protests spread in the country. His coalition also failed to pass an emergency vote aimed at tackling the housing crisis.
A similar crisis is happening in France, the second-biggest economy in Europe, where protests are happening. The root cause of the crisis is the country’s debt crisis, with its debt-to-GDP ratio rising to 117.6%. As a result, the country’s government bond yield has continued rising, with the ten-year rising to 4.977% last week.
In Italy, which has a debt-to-GDP ratio of 138%, the ten-year yield has risen to 4.7%, its highest level since October 2023. These numbers have raised concerns that we could experience another European debt crisis.
The EUR/USD pair also reacted to the rising US debt yield. The ten-year yield rose to 5.317%, while the 30-year and 5-year hit 5.67% and 5.07%, respectively. These yields have soared as the public debt soars to over $40.2 trillion.
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The next key catalyst for the EUR/USD pair will be the upcoming European retail sales data. Economists expect the data to show that sales rose by 0.3% in August after falling by 0.6% in the previous month.
The pair will also react to the latest US trade numbers, which will provide more information about the state of trade between the US and other countries. Most importantly, the Federal Reserve will publish minutes of the last meeting.
EUR/USD Technical Analysis
The daily chart shows that the EUR/USD pair has been in a strong downward trend in the past few days. It dropped below the important support level of 1.1383, the neckline of the head-and-shoulders pattern.
The pair has dropped below the 38.2% Fibonacci Retracement level. It has also retreated below the 50-day and 200-day moving averages. These indicators point to more downside in the near term. However, the Relative Strength Index (RSI) has dropped to the extreme oversold level of 19.
Therefore, the pair may rebound, potentially to 1.1383 and then resume the downward trend, potentially to 1.100.
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