Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1200.
- Add a stop-loss at 1.1570.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1570.
- Add a stop-loss at 1.1200.
The EUR/USD exchange rate plummeted after the Federal Reserve announced its July interest rate decision and following the release of strong US economic data. It dropped to a low of 1.1430, its lowest level since June 11, down by over 3.3% from its highest point this year.
Federal Reserve Decision and US Data
The EUR/USD pair has been in a strong downward trend this week following the EU and US reaching a trade agreement. Most European goods will be charged a 15% tariff, a move that may lower the bloc’s growth.
The pair continued its downtrend after the US published strong economic numbers. In a statement, ADP said that the economy added 108,000 jobs this month after shedding over 25k jobs in June.
Another report showed that the economy expanded by 3% in the second quarter, a significant increase compared to what analysts had expected. This increase was notable because the economy contracted by 0.3% in the previous quarter.
The EUR/USD exchange rate then plunged after the Federal Reserve delivered its interest rate decision. It left interest rates unchanged between 4.25% and 4.50%, as most analysts had expected.
The bank’s decision was a defiance to Donald Trump who pushed the bank to cut rates in his bid to supercharge the economy. Officials also maintained their data-dependence view in determining when to cut interest rates.
The EUR/USD pair will next react to the upcoming US personal consumption expenditure (PCE) data. Economists expect the data to show that the PCE rose to 2.7% in July, as the impact of tariffs began to take effect.
The pair will also react to the upcoming nonfarm payrolls (NFP) data on Friday. These numbers will help the Fed decide when to cut interest rates.
EUR/USD Technical Analysis
The daily chart shows that the EUR/USD exchange rate has crashed in the past few days. This drop happened after the pair formed a double-top pattern at 1.1830 and has now moved below the neckline at 1.1570.
The pair has moved below the 23.6% retracement level at 1.1440. It also plunged below the 5-day moving average, while the two lines of the MACD have formed a bearish crossover.
Therefore, the pair will likely continue falling as sellers target the psychological point at 1.1200. A move above the neckline at 1.1570 will invalidate the bearish outlook.
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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.