Bullish view

• Buy the EUR/USD pair and set a take-profit at 1.0943.
• Add a stop-loss at 1.08500.
• Timeline: 1-2 days.

Bearish view

• Set a sell-stop at 1.0887 and a take-profit at 1.0800.
• Add a stop-loss at 1.0940.

(Click on image to enlarge)

The EUR/USD exchange rate surged above a key resistance level and reached its highest point since March 21st as the US dollar slumped. The pair soared to a high of 1.0900, much higher than April’s low of 1.0600.
 

ECB and Federal Reserve rate cuts

The US dollar index slumped by over 40 basis points after the weak US manufacturing PMI data raised the probability that the Federal Reserve will slash interest rates sooner than expected.

In a report on Monday, the ISM showed that the manufacturing PMI crashed to 48.6 in May, its lowest level in months. This figure added to other reports that have showed that the US economy was slowing.

A report by the Bureau of Economic Analysis (BEA) revealed that the economy expanded by 1.3% in Q1, lower than the first estimate of 1.6%. Another closely-watched figure from the Atlanta Fed revealed that the country’s economy will grow by 1.8% in Q2.

US retail sales, industrial production, and the housing market have cooled, signalling that the economy is not doing well. Recent data also show that the economy has moved into a stagflation since inflation is still hot.

Therefore, some analysts expect that the Federal Reserve will cut interest rates earlier than expected. In a report, Standard Chartered analysts believe that the Fed will cut rates in its July meeting.

The next important catalyst to watch will be the European Central Bank (ECB) decision on Thursday. This will be a crucial meeting as the bank is expected to cut interest rates for the first time in months.

However, the ECB could point to a pause since recent data showed that the bloc’s inflation was starting to rise. The headline Consumer Price Index (CPI) rose to 2.6% in May, up from 2.4% in April.
 

EUR/USD technical analysis

The EUR/USD pair rebounded to its highest point in three months as odds of a Fed rate cut rose. It soared to a high of 1.0900, moving above the descending trendline that connects the highest point since March 8th. The pair has also rallied above the 50-period and 25-period Exponential Moving Averages (EMA).

It has also jumped above the crucial resistance point at 1.0887, its highest swing on May 28th. The Relative Strength Index (RSI) and the MACD indicators have all pointed upwards. Therefore, the pair will likely continue rising as buyers target the key resistance point at 1.0943, its highest point on March 21st.

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