There is a likelihood that the pair will continue falling as bears target the next key level at 1.0700.
Bearish View
- Sell the EUR/USD pair and set a take-profit at 1.0700.
- Add a stop-loss at 1.1050.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 1.100 and a take-profit at 1.1150.
- Add a stop-loss at 1.070.
The EUR/USD pair continued its bearish trend in the overnight session as risks of a European recession rose. It dropped to a low of 1.0815, which was the lowest level since May 2020. It has crashed by over 13% from the highest point in 2021.
European Recession Rxisks
The European Central Bank (ECB) is between a rock and a hard place. For months, the bank has been implementing its quantitative easing (QE) policy in a bid to cushion the economy from the Covid-19 pandemic. It has also left interest rates in the negative zone for a while.
Now, there are concerns that the ECB will have a difficult time to exit the accommodative policies if the European economy moves to a recession. With inflation surging, the bank needs to start hiking rates and transitioning to a new normal.
However, with the ongoing crisis in Ukraine, there are fears that the European economy will go through a recession because of the rising energy prices. Russia has already warned that it could cut supplies to European countries as a revenge for the sanctions.
If this happens, there is a likelihood that oil and gas will continue their bullish trend, leading to substantial inflation. This inflation will then limit consumer spending, which is the biggest part of the bloc’s economy.
The EUR/USD pair dropped as investors rushed to the safety of the US dollar. Like the ECB, the Fed is also facing tough choices as inflation keeps rising. The US will publish the latest consumer inflation data on Thursday. Analysts polled by Reuters expect the data to show that inflation approached 8% in February and the trend will likely continue.
There will be no major economic data from the US and Europe on Wednesday. Therefore, investors will focus on geopolitical issues.
EUR/USD Forecast
The daily chart shows that the EUR/USD pair has been in a strong bearish trend in the past few days. The sell-off accelerated after the pair moved below the key support level at 1.1176. It has moved below the short and long-term moving averages while the Relative Strength Index (RSI) has moved below the oversold level. The MACD has also dropped below the neutral line.
Therefore, there is a likelihood that the pair will continue falling as bears target the next key level at 1.0700.
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