Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1500.
- Add a stop-loss at 1.1210.
- Timeline: 1-2 days.
Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1200.
- Add a stop-loss at 1.1500.
The EUR/USD exchange rate surged to a high of 1.1473, its highest level since November 2021, as the US dollar index (DXY) plunged. It rose for two consecutive weeks, meaning that it has soared by over 12% from its lowest level this year.
ECB decision and US dollar sell-off
The EUR/USD exchange rate continued soaring because of the broader US dollar sell-off as concerns about its role as a safe haven continued rising.
One concern has been the ongoing volatility in the US bond market as the trade war gains steam. Just last week, the US and China continued their tit-for-tat trade war that pushed US tariffs on Chinese goods to 145% and Chinese levies on US goods to 125%.
US bonds have become more volatile, with the yield of the 10-year Treasuries initially falling to 3.85% last week and then rebounding to 4.4%. Other bond yields have continued rising in the past few days.
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The EUR/USD pair rose as analysts warned that the US was moving into a recession. Economists from most Wall Street firms have boosted their estimates for a US recession this year, citing its tariffs.
The next key catalyst for the EUR/USD pair will be the upcoming European Central Bank (ECB) decision that will come out on Thursday. Economists expect that the bank will maintain a moderately dovish tone because of tariffs.
The base case is where the bank slashes interest rates by 0.25% and points to more cuts later this year. In a statement last week, Christine Lagarde maintained that the bank was willing to deploy its instruments to maintain stability in the region.
The pair will also react to the upcoming European consumer inflation and US retail sales data. While these numbers are important, their impact on the pair will be a bit muted.
EUR/USD technical analysis
The EUR/USD exchange rate has gone parabolic in the past few months after bottoming at 1.0180 in January.
It crossed the important resistance level at 1.2095 last week as the surge continued. This was a notable level since it was the double-top point in August and September last year.
This price was also the upper side of the cup and handle pattern, a popular bullish continuation sign whose depth is about 9.20%.
The pair remains above the 50-day moving average, which is a bullish sign. Therefore, the pair will likely continue soaring as bulls target the next psychological level at 1.1500. The alternative scenario is where it first retests the support at 1.1210 and then resumes the uptrend.
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