Bearish view
Sell the EUR/USD pair and set a take-profit at 1.1000.
Add a stop-loss at 1.1130.
Timeline: 1-2 days.
Bullish view
Buy the EUR/USD pair and set a take-profit at 1.1130.
Add a stop-loss at 1.100.
The EUR/USD exchange rate dropped to its lowest level since May last year as US bond yields continued to rise following the latest US economic data. It fell to 1.1093, well below its year-to-date high of 1.2074.
US Bond Yields and Oil Prices are Rising
The EUR/USD pair has been in a strong sell-off this week after the US published encouraging macroeconomic numbers. A report released last Friday showed that the economy created 165k jobs last month as the unemployment rate dropped to 4.1%.
Another report released this week showed that inflation remained at an elevated level last month. The headline consumer price index (CPI) rose 0.4% in November, higher than the expected 0.3%. Core inflation, which excludes the volatile food and energy prices, rose 0.3%, higher than the expected 0.2%.
US inflation may continue rising now that crude oil prices are rising again. Brent, the global benchmark, rose to $94, while the West Texas Intermediate (WTI) rose to $88.35. If these gains hold, it means that gasoline and diesel prices will continue rising.
These events have led to a surge in US bond yields. The ten-year yield crossed the important milestone of 5% and moved to 5.027%. Similarly, the 30-year yield jumped to 5.35%, while the five-year metric soared to 4.83%. These numbers mean that the Federal Reserve may continue hiking interest rates in the December meeting.
Some Federal Reserve officials have maintained their hawkish tone. In a statement on Tuesday, Christopher Waller, a top Fed governor, said that he will support a 50bps hike in the next meeting. Other Fed officials like Austan Goolsbee and Anna Paulson have maintained a hawkish tone, while odds of rate hikes have jumped to over 90%.
EUR/USD Technical Analysis
The daily chart shows that the EUR/USD pair has been in a bearish trend in the past few weeks. It has dropped below the 50% Fibonacci Retracement level. The pair has dropped below the important support level of 1.1095, the lower side of the bearish flag pattern.
The pair has remained below the Supertrend indicator. Therefore, the path of the least resistance for the pair is bearish, with the next level to watch being at 1.1000. A drop below that level will point to more downside towards the 61.8% retracement level of 1.0898.
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