Bearish view
Buy the EUR/USD pair and set a take-profit at 1.1350.
Set a stop-loss at 1.1500.
Timeline: 1-2 days.
Bullish view
Buy the EUR/USD pair and set a take-profit at 1.1500.
Add a stop-loss at 1.1350.
The EUR/USD pair rose slightly on Monday, continuing a recovery that started on June 24 when it dropped to 1.1323. It will be relatively volatile this week as the European Central Bank (ECB) and Federal Reserve minutes later this week.
ECB and FOMC Minutes
The EUR/USD pair rose modestly after the US released relatively weak jobs report. This report showed that the economy created 57k jobs last month and revised the May jobs data from 172k to 129k. These numbers mean that the labor market is relatively weaker than expected.
At the same time, there are signs that the country’s inflation has peaked as crude oil and gas prices drop. The WTI and Brent have continued falling this month and are substantially below the year-to-date high of close to $120. The average gasoline price dropped to $3.8 a gallon from the year-to-date high of $4.50.
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As such, a combination of falling consumer inflation and weak jobs numbers mean that the Federal Reserve will not have the urgency to hike interest rates. Odds of a rate hike have dropped from over 57% earlier this year to 48% today.
The Fed will publish minutes of the last meeting on Wednesday, shedding more color on what officials deliberated in the last meeting. Officials decided to leave rates unchanged between 3.5% and 3.75% in that meeting, with nine of them signaling support for hikes later this year.
These officials are concerned about the elevated inflation, which has remained above the 2% target for years.
The European Central Bank will also release minutes of the last meeting on Thursday, shedding light on what happened during the meeting. These minutes come as Christine Lagarde hinted that she might leave the bank before her term expires. The key data to watch will be the upcoming EU Producer Price Index (PPI) numbers.
EUR/USD Technical Analysis
The daily chart shows that the EUR/USD pair has risen in the past few days, moving from a low of 1.1323 in June to 1.1437. It has jumped above the key level of 1.1412, the lowest level in March this year.
The pair remains below the 50-day Exponential Moving Average (EMA) and has slowly formed a bearish flag pattern. This flag is a common bearish continuation signs. Most importantly, it has formed a multi-month head-and-shoulders pattern, pointing to more downside over time. The key support and resistance levels to watch will be 1.1325 and 1.1500.
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