Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1350.
- Add a stop-loss at 1.1635.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1635.
- Add a stop-loss at 1.1350.
The EUR/USD exchange rate pulled back after the US published weak economic numbers as the Federal Open Market Committee (FOMC) started its two-day monetary policy meeting. It also retreated as the crisis in the Middle East escalated.
FOMC interest rate decision
The EUR/USD exchange rate retreated after the US published a series of weak economic numbers, which provided more information about the impact of tariffs on the economy.
Economic data showed that retail sales dropped by 0.9% in May after falling by 0.1% in the previous month. This decline led to a 3.3% annual retail sales growth, also lower than the median estimate of 5%.
More data showed that US industrial production dropped by 0.2%, while the export price dropped by 0.9% from 0.1%. These numbers mean that the US may be heading towards another negative growth this quarter.
The data came as the Federal Reserve started its two-day meeting. Economists expect the bank to leave interest rates unchanged as it observes the impact on Trump’s tariffs on the economy.
However, there is also a likelihood that the bank will turn dovish in this meeting since recent data showed that inflation was not growing as fast. Last week’s consumer inflation report rose from 2.3% to 2.4%, lower than the median estimate of 2.5%.
The EUR/USD exchange rate retreated as the crisis escalated, leading to higher crude oil prices. Analysts warn that the crisis could go on in the next few months, which may raise demand for the US dollar, a common safe-haven asset.
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EUR/USD technical analysis
The daily chart shows that the EUR/USD exchange rate peaked at 1.1631 last week and then retreated to the current 1.1485. It moved below the important support level at 1.1573, the upper side of the double-top pattern whose neckline is at 1.1062, its lowest point on May 12.
The pair has remained above the 50-day and 100-day Exponential Moving Averages (EMA). The pair’s Relative Strength Index (RSI) has pulled back to 57 from this month’s high of 66.35.
Therefore, the most likely scenario is where the pair continues falling before and after the Fed decision. If this happens, the next level to watch will be the psychological point at 1.1350. A move above the year-to-date high of 1.1631 will invalidate the bearish view.
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Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.
