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There is a likelihood that the pair will resume the bullish trend as sellers target the 50% retracement level at 1.0382.
Bullish View
- Set a buy-stop at 1.0250 and a take-profit at 1.0375.
- Add a stop-loss at 1.0125
- Timeline: 1-2 days.
Bearish View
- Set a sell-stop at 1.0100 and a take-profit at 1.000.
- Add a stop-loss at 1.0200.
The EUR/USD currency pair pulled back as the strong euro recovery took a breather ahead of the upcoming ECB interest rate decision. The pair dropped to a low of 1.0150, which is slightly below this week’s high of 1.0280.
ECB Rate Decision Preview
The EUR/USD pair pared back some of this week’s gains as traders refocused on the upcoming ECB decision. This will be a pivotal meeting because the bank is expected to deliver its first interest rate hike in 11 years.
In its recent meeting, the bank hinted that it will start by raising interest rates by 0.25% in this meeting and then exit negative rates in September. Indeed, most economists polled by Bloomberg showed that the bank will hike by 0.25%.
However, with the inflation changing, analysts expect that the bank will hike rates by 0.50%. Data published this week showed that the consumer price index (CPI) rose by 8.6% in June as the cost of energy remained at elevated levels.
In addition to the main rate hike, analysts will watch the bank’s GDP outlook for the region. In the recent meeting, the bank predicted that the economy will grow by 2.8% in 2021 and then grow by 2.1% in 2023. Further, the bank will likely address the performance of the euro and the potential euro debt crisis. While the ECB statement will move the euro, the main catalyst will be Christine Lagarde’s press conference.
The EUR/USD pair also declined as investors focused on the situation in Italy. In a statement on Wednesday, Mario Draghi said that he will remain as the prime minister if parties unite. Some Five Star Movement members have vowed to support Draghi. Therefore, there is a likelihood that the country will see some stability.
The pair will also react to the latest Philadelphia Fed manufacturing index. Analysts expect the data to show that the index improved from -3.3 in June to -2.5 in July.
EUR/USD Forecast
The EUR/USD pair declined to the 23.6% Fibonacci retracement level on the four-hour chart. It remains slightly above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved below the overbought level of 70.
The pair seems to be forming an inverted head and shoulders pattern. Therefore, there is a likelihood that the pair will resume the bullish trend as sellers target the 50% retracement level at 1.0382.
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