Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1575.
- Add a take-profit 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 1.1575.
The EUR/USD exchange rate pulled back and bottomed at a crucial support level as traders watched the ongoing developments on trade and waited for the upcoming US Consumer Price Index (CPI) data. It dropped to 1.1665, down from the year-to-date high of 1.1825.
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US Inflation Data Ahead
The EUR/USD exchange rate dropped to a crucial support level even after Donald Trump indicated that he was open to a trade deal with the European Union.
His statement came two days after he sent a letter the Ursula von der Leyen, warning that he would apply a 30% tariff on European goods if there will be no deal by the end of the month. The EU has created a list worth 21 billion euros that it woul target as well.
The next important catalyst for the EU/USD exchange rate will come out on Tuesday when the US publishes the June inflation data. Economists expect the report to show that the headline consumer inflation rose frm 2.4% in May to 2.7% in June, the biggest increase in months.
Core inflation, which excludes the volatile food and energy prices, is expected to jump from 2.8% to 3.0%. These numbers will provide more information on the impact of Trump’s tariffs on inflation.
A jump in prices will lower the odds that the Fed will slash interest rates soon. Odds of a cut this month as Christopher Waller and Michele Bowman have suggested, dropped to near zero after the strong nonfarm payrolls data.
The EUR/USD pair will also react to statements by some Fed officials like Michele Bowman, Michael Barr, and Susan Collins will talk today.
EUR/USD Technical Analysis
The eight-hour chart shows that the EUR/USD exchange rate dropped from the year-to-date high of 1.1826, its highest point in July. It has bottomed at the ascending trendline that connects the lowest swing since February this year.
The pair has remained above the 50-day Exponential Moving Average (EMA). Also, the MACD has moved below the zero line, while the Directional Movement Index (DMI) has pulled back.
Therefore, the pair will likely fall and retest the support at 1.1575, the highest point in April this year. This view will be confirmed if it moves below the ascending trendline.
The alternative scenario is where it rebounded and retests the year-to-date high of 1.1825. A move above that level will point to more gains, potentially to 1.1900.
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