Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1725.
- Add a stop-loss at 1.550.
- Timeline: 1-2 days.
Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1550.
- Add a stop-loss at 1.1725.
The EUR/USD exchange rate has pulled back in the past few days as the US dollar index bounced back following a series of strong US economic numbers.
It was trading at 1.1625, down from the year-to-date high of 1.1830. Focus now shifts to the upcoming European Central Bank (ECB) decision and talk on the next Federal Reserve cut.
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ECB Interest Rate Decision
The EUR/USD exchange rate pulled back after the US published strong numbers, easing the pressure on the Federal Reserve to cut interest rates as Donald Trump expects.
Data released last week showed that consumer inflation remained stubbornly high in June. The data revealed that the headline consumer price index (CPI) rose to 2.7% in June, while the core CPI moved up to 2.9%.
Another report showed that retail sales jumped in June after falling in the previous two consecutive months. Further, the country’s labor market is strong, with the unemployment rate falling to 4.1% and the economy creating over 147,000 jobs.
Therefore, market participants expect the Fed to start cutting interest rates later this year, instead in the July meeting. However, there are signs of division inside the Fed, with Christopher Waller putting pressure on officials to cut in the July meeting.
In his recent remarks, Waller noted that it will be good to cut rates now, which he hopes will help to boost the labor market.
The next key catalyst for the EUR/USD exchange rate will be the upcoming European Central Bank decision on Thursday. Market participants expect the bank to leave interest rates unchanged at 2% even as Donald Trump threatens hefty tariffs on European goods.
Tariffs on European goods would come at a time when the euro has strengthened substantially, making European goods more expensive in the US.
EUR/USD Technical Analysis
The daily chart shows that the EUR/USD exchange rate has pulled back in the past few days. It has dropped from the year-to-date high of 1.1830 to 1.1625 today.
The pair remains above the 50-day moving average, and most importantly, it has retested the important support at 1.1570, its highest point in April. That is a sign that it has formed a break-and-retest pattern, a popular bullish continuation sign.
The EUR/USD pair has formed a bullish flag pattern. Therefore, it will likely continue rising as bulls target the year-to-date high of 1.1830. A move below the support at 1.1550 will invalidate the bullish outlook.
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