Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1440.
- Add a stop-loss at 1.1650.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1650.
- Add a stop-loss at 1.1440.
The EUR/USD exchange rate continued its strong downtrend as the market digested the European Union-United States trade deal announced on Sunday. It dropped to a low of 1.1518, its lowest point since June 23rd, and 2.57% below its highest point this year.
Fed Decision and Key Macro Data Ahead
The EUR/USD exchange rate continued its strong downtrend as investors reacted to the latest trade deal between the US and the EU. This deal will see goods shipped from the EU to the US pay a 15% tariff, a move that will make some of them uncompetitive.
The EU also committed to spend $750 billion in energy purchases and more on military equipment. While the end of the trade war brings stability to the European economy, it also means that its growth may be constrained.
The EUR/USD pair plunged after a report by the Conference Board showed that consumer confidence rose to over 97 in July from 95.2 in the previous month.
An improving consumer confidence report is a sign that the economy is starting to recover as they are the biggest part of the US GDP.
The EUR/USD pair will also react to the upcoming US GDP report for the second quarter. Economists believe that the economy rebounded by 2.4% in the second quarter after contracting by 0.5% in the previous quarter.
The other key economic data will be the ADP employment change data. This report is expected to show that the private sector added 78k jobs in July after losing 33k in June.
The EUR/USD pair will then react to the Federal Reserve interest rate decision. As it has done this year, the bank will likely continue its pause, leaving interest rates between 4.25% and 4.50%.
EUR/USD Technical Analysis
The daily chart shows that the EUR/USD exchange rate has crashed after the EU-US trade deal. This retreat happened after it formed the highly bearish double-top pattern.
The pair has moved below the 50-day moving average and the key support at 1.1570, the highest swing in April, and the neckline of the double-top pattern.
Additionally, the two lines of the MACD indicator and the Relative Strength Index continued to point downwards. Therefore, the pair will likely continue falling as sellers target the 23.6% retracement level at 1.1440.
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Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.