Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1565.
- Add a stop-loss at 1.1300.
- Timeline: 1-2 days.
Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1300.
- Add a stop-loss at 1.1565.
The EUR/USD exchange rate continued its strong rally after the US published weak economic numbers, stoking recession concerns. It jumped to a high of 1.1422 on Monday, its highest point since April 22. It has jumped by over 3.20% from its lowest point in April.
Recession concerns emerge
The EUR/USD pair rose as the US dollar plunged to the lowest point in three years after the latest US manufacturing data. Reports by S&P Global and the Institute of Supply Management showed that the manufacturing sector weakened in May.
The ISM manufacturing PMI dropped to 48.5 in May, from 49.7 in April. Another report by S&P showed that the PMI fell from 52 in April to 50.2 in May.
These numbers mean that the manufacturing sector is worsening in the US as companies navigate the current tariffs.
They also mean that the US economic weakness continued in the second quarter after it contracted in Q1.
The EUR/USD pair also jumped after analysts at Morgan Stanley warned that the US dollar index was at risk of falling by about 9% to hit $90. It has already moved into a correction after falling by over 10% from the highest point this year.
The analysts cited the potential unwinding of US assets by global investors as the country becomes less appealing because of Donald Trump’s policies.
The next important catalyst for the EUR/USD pair will come out on Tuesday when the European Union publishes the latest consumer inflation data. Economists expect the data to show that the core inflation dropped from 2.7% in April to 2.5% in May, while the headline CPI fell from 2.2% to 2.0%.
These numbers will come as the European Central Bank prepares to make its interest rate decision. Analysts anticipate that the bank will slash rates by 0.25% and point to one more later this year.
EUR/USD technical analysis
The EUR/USD pair has been in a strong uptrend in the past few months, moving from a low of 1.0178 in January to 1.1423, its highest point since April 22. It has jumped above the crucial resistance point at 1.1215, the upper side of the cup and handle pattern, a popular bullish continuation sign.
Bitcoin has remained above the 50-day and 100-day moving averages, while the Relative Strength Index (RSI) and the MACD have all pointed upwards. Therefore, the pair will likely continue rising as bulls target the year-to-date high of 1.1566. Moving above that level will point to more gains, as it will have invalidated the double-top pattern.
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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.