The EUR/USD currency pair showed a strong decline yesterday after the U.S. economic data release and the ECB interest rate decision.
Quarterly GDP data published on Thursday were better than the forecast and previous figures, with growth of 2.4%. This strengthened the dollar and bond yields amid higher interest rates. The U.S. economy keeps surprising. The Fed may continue the rate hike cycle or maintain it at the current level for longer than investors expect. Therefore, the dollar may continue to strengthen.
The U.S. economy rose due to resilient consumer spending and robust business investment. Other Thursday's economic data also showed stronger than expected results. There was an increase in the durable goods orders index, as well as fewer jobless claims. This data confirms the fact that the Fed can keep inflation under control without leaving millions of people unemployed.
On the other hand, the European regulator is limited in its ability to further tighten policy. Europe’s economy is not as strong as it is in the U.S. Thus, in case of a prolonged rate hike, the Eurozone will be the first to give up.
According to market participants' forecasts, the ECB will implement another interest rate increase by a quarter of a point. At the same time, investors are assessing the likelihood of close completion of a year-long monetary policy tightening cycle by the European financial regulator.
Thursday's deposit rate hike to 3.75% has been repeatedly announced by ECB President Christine Lagarde and her colleagues. However, the main question is whether this rate increase will be the last one or the central bank will repeat this move in September.
According to the technical analysis, the EUR/USD currency pair showed the strongest daily decline in the last couple of months. The uptrend has been broken. Moreover, the 0.382 Fibonacci level was broken downwards. Therefore, new targets for the euro weakening are being opened.
The next downside target will be the price of 1.090. The most important Fibonacci level of 0.5 is located there. A Stop-loss will be set at returning above the broken level of 0.382, which corresponds to 1.102. This scenario will mean that the currency pair's uptrend will be maintained.
EURUSD is likely to decline:
Take profit – 1.090
Stop-loss – 1.102
This content is for informational purposes only and is not intended to be investing advice.
