Ripe for a Major Bearish Breakout

A break below the support at 1.0388 will signal that bears have prevailed.

Bearish View

  • Set a sell-stop at 1.0390 and a take-profit at 1.0300.
  • Add a stop-loss at 1.0500.
  • Timeline: 1-2 days.

Bullish View

  • Set a buy-stop at 1.0471 and a take-profit at 1.0550.
  • Add a stop-loss at 1.0380.

The EUR/USD pair declined slightly as concerns about the future of the European economy continued. The euro is trading at 1.0420, which is a few pips above its lowest level since 2002. There are also talk that the pair will fall to parity level in the coming weeks.


Euro Weakness Continues

There are several concerns about the Euro area economy as investors pay a close attention to a number of key events.

First, Finland and Sweden have announced their intention to join Nato, a move that has already infuriated Vladimir Putin. As such, there are concerns that Putin will invade the two countries in future and even cut them from vital natural resources. In a statement on Monday, he warned against placing military equipment close to its border.

Second, there are lingering inflation costs in the European economy as gas prices remain at an elevated level. On a positive side, gas prices in the region declined on Monday as the European Union decided to give waivers for companies to continue buying gas from the country.

Further, recent economic data fromthe Euro area have been significantly weak. Retail sales have declined sharply while industrial production has lagged that of other regions.

The key catalyst for the EUR/USD pair will be the upcoming speech by Christine Lagarde. The ECB president will likely provide hints about the bank’s next moves. Analysts are pricing in a rate hike in the July meeting.

Another big data will be the US retail sales. With consumer confidence falling, and with inflation at the highest level in more than 40 years, there is a likelihood that retail sales dropped in April. The consensus view is that the headline sales rose by 0.9% in April while core sales rose by 0.5% on a month-on-month basis.

EUR/USD Forecast

The EUR/USD pair has been ranging in the past few days as concerns bout the Euro area economy continues. On the 4H chart, the pair has formed a bearish flag pattern that is shown in black. It is also slightly below the important resistance level at 1.0472, which was the lowest level on April 28th.

The EURUSD pair’s downward trend has also been supported by the 25-day moving average. Therefore, a break below the support at 1.0388 will signal that bears have prevailed. As a result, it will see the pair drop to the key support level at 1.0300.


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