Bearish view
Sell the EUR/USD pair and set a take-profit at 1.1500.
Add a stop-loss at 1.1750.
Timeline: 1-2 days.
Bullish view
Buy the EUR/USD pair and set a take-profit at 1.1750.
Add a stop-loss at 1.1500.
The EUR/USD exchange rate remained in the red as US and European bond yields continued rising. It was trading at 1.1650 on Tuesday, lower than this month’s high of 1.1850 as focus shifted to the upcoming Federal Reserve minutes.
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The EUR/USD pair remained under pressure amid the ongoing US dollar index surge. Data shows that the DXY Index has risen to nearly $100 from this month’s low of $97.30.
The dollar has jumped in the past few days after the US published the latest consumer and producer inflation report. Data shows that the headline CPI jumped to 3.8%, while the PPI jumped to 6.0%.
These numbers have pushed US bond yields higher, with the ten-year rising to 4.63%. Short-term bond yields have also soared, with the two-year rising to 4.1%, its highest level since March last year.
Therefore, the most likely scenario is where the Federal Reserve maintains high interest rates for longer. Even with Kevin Warsh at the helm, analysts believe that the bank will not cut rates this year. The bank will publish its minutes of the last meeting on Wednesday.
European bond yields have also continued rising as the block’s inflation continued rising. Data shows that the German ten-year yield rose to a multi-year high of 3.2%, while in France, the figure jumped to 4%, its highest level in years.
The EUR/USD pair will react mildly to the upcoming US pending home sales report. Economists expect the data to show that pending home sales dropped by 0.5% in April after falling by 1.1% in the previous month.
EUR/USD Technical Analysis
The daily chart reveals that the EUR/USD pair has pulled back in the past few days. It recently formed a small double-top pattern and is now about to move below the neckline at 1.1658.
The pair has also formed a large multi-month head-and-shoulders pattern, a popular bearish reversal sign. It has slipped below the 100-day moving average, a sign that bears have prevailed.
Therefore, the pair will likely continue falling, potentially to the psychological level at 1.1500. A move below that level will point to more downside, potentially to 1.1482, the head-and-shoulders neckline.
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