Bullish view
Buy the EUR/USD pair and set a take-profit at 1.1800.
Add a stop-loss at 1.1600.
Timeline: 1-2 days.
Bearish view
Sell the EUR/USD pair and set a take-profit at 1.1600.
Add a stop-loss at 1.1800.
The EUR/USD exchange rate retreated after the Federal Reserve delivered its interest rate decision on Wednesday. It also dropped as energy prices surged amid the ongoing rhetoric between the US and Iran. It was trading at 1.1677, a few points below this month’s high of 1.1855.
ECB Interest Rate Decision Ahead
The EUR/USD pair retreated as investors reacted to the latest Federal Reserve interest rate decision. As was widely expected, the bank left rates unchanged as officials watched the implications of the ongoing Iran war.
The only difference is that the number of dissents increased. Stephen Miran voted to cut rates by 0.25%, pointing to the weakening labor market, which has stalled in the past year.
Fed officials like Beth Hammack, Lorie Logan, and Neel Kashkari also dissented, pointing that they did not support the inclusion of an easing bias in the statement.
This view was a response to a statement in which officials hinted that the next rate action will be lower. Fed officials are contending with a situation of stagflation, which is characterized by higher inflation and slow growth. Meanwhile, analysts anticipate that inflation will continue rising in the near term as energy, fertilizer, and airfares surge.
The EUR/USD pair will react to the upcoming European Central Bank (ECB) interest rate decision. Like the Fed, analysts anticipate that the bank will continue the status quo by leaving interest rates. The bank is now contending with rising inflation and slow economic growth as the cost of doing business rise.
The EUR/USD pair will next react to the upcoming macro data from the US and Europe. In Europe, Eurostat will release the latest consumer inflation and GDP report. Economists expect the data to show that the economy expanded by 0.9% in Q1.
The US will publish the latest GDP report, which will provide information about the economy as the war was starting.
EUR/USD Technical Analysis
The EUR/USD pair has pulled back in the past few days as the US dollar rebounded. It dropped to a low of 1.1665, its lowest level since April 9 this year.
The pair has dropped slightly below the 50-day Exponential Moving Average (EMA), while the Relative Strength Index (RSI) and the MACD indicators have continued falling. The RSI has moved from 65 to below the neutral point at 50.
Therefore, the most likely scenario is where the pair bounces back, possibly to the key resistance level at 1.1800. On the flip side, a move below the key support at 1.1600 will invalidate the bullish outlook.