Bullish View
- Buy the EUR/USD pair and set a take-profit at 1.0500.
- Add a stop-loss at 1.0345.
- Timeline: 1-2 days.
Bearish View
- Set a sell-stop at 1.0420 and a take-profit at 1.0350.
- Add a stop-loss at 1.0500.
The EUR/USD pair formed a double-bottom chart pattern at 1.0341 after the encouraging US consumer inflation data. It was trading at 1.0430 on Monday, as traders anticipated a low-volume week with no significant economic data and a long holiday.
US PCE Data and Fed
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The EUR/USD exchange rate continued to sell off as the divergence between the United States and Europe continued. The US is doing well, avoiding the much-anticipated recession, while some of the biggest European countries have stopped growing. For example, while the US has grown by 12% since the COVID-19 pandemic, Germany has remained stagnant.
Germany and France, the two biggest European countries, also face substantial political issues. The French government collapsed a few weeks ago, while Germany is expected to go to an election in February next year.
The European Central Bank (ECB) has also maintained a more dovish tone than the Federal Reserve. It has slashed interest rates four times this year, and analysts expect that it will deliver more cuts in the coming year.
The Fed, on the other hand, has cut rates three times, and officials expect a few more cuts in 2025 since the economy is doing well. There are also signs that the Fed is about to achieve its 2% inflation goal after the headline and core PCE numbers came lower than expected.
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The EUR/USD pair will experience thin volumes this week as most European markets will be closed for a few days because of Christmas. US markets will also be closed on Wednesday and partially on Tuesday and Thursday. Therefore, the upcoming data like consumer confidence, new home sales and durable goods orders will have a limited impact on the pair.
EUR/USD Technical Analysis
The EUR/USD pair is grappling with sustained downward pressure as the euro falls and the US dollar jumps. It lost the key support level at 1.0450, its lowest swing in October last year. It also remains below the lower and the middle line of the Donchain Channels, a popular indicator that looks at an asset’s volatility within a certan period. The MACD indicator has moved below the zero line.
Therefore, the path of the least for the pair is downwards as the US and EU divergence continues. The pair may temporarily rebound because it has formed a small double-bottom chart pattern at 1.0340. If this happens, the pair may retest the resistance at 1.0500.
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