Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.100.
- Add a stop-loss at 1.0780.
- Timeline: 1-2 days.
Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0780.
- Add a stop-loss at 1.1000.
The EUR/USD exchange rate held steady and is hovering near its highest level since November last year as focus remains on the trade war and the upcoming Federal Reserve interest rate decision. The pair was trading at 1.0878 on Monday morning, a few points below the year-to-date high of 1.0942 and 6.90% above the lowest level this year.
US retail sales data ahead
The EUR/USD pair has been in a strong uptrend in the past few months, driven by the tumbling US dollar. The closely-watched US dollar index (DXY), which tracks the performance of the greenback against a basket of currencies, has dropped from $110 earlier this year to $103.73.
This decline has happened as concerns about the US economy have remained. The closely-watched GDP estimate by the Atlanta Fed signals that the economy will contract by over 2.4% this quarter.
Most of this decline will be driven by Donald Trump, who has promised to intensify his tariffs against friendly countries like the European Union and foes like China. Analysts, including Christine Lagarde, argue that the US will be the biggest loser as tariffs will make it expensive for consumers.
Recent data shows that the US economy is slowing. A report by Michigan University on Friday showed that consumer confidence tumbled this month. That was in line with the recent confidence report by the Conference Board.
Therefore, these numbers mean that the Federal Reserve will embrace a more dovish tone later this week. This view may take the shape of the bank pointing to three or four rate cuts later this year. The bank has signaled that it would deliver two cuts this year in the last two meetings.
The EUR/USD pair will react to other important economic numbers this week, including US retail sales, housing starts, manufacturing production, and initial jobless data. The key data to watch from Europe will be the upcoming inflation report.
EUR/USD technical analysis
The EUR/USD exchange rate has been in a steady uptrend in the past few months as the US dollar index fell. It has moved above the 61.8% Fibonacci Retracement level, while the spread between the 50-day and 200-day Weighted Moving Averages (WMA) has narrowed.
The Percentage Price Oscillator (PPO) has moved above the zero line, while the Relative Strength Index (RSI) has pointed upwards. These momentum oscillators are signs that the pair has bullish momentum.
The pair has formed a small bullish pennant pattern, pointing to further upside in the coming days. If this happens, the next point to watch will be at 1.1000.
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