Play of the Day: EUR/USD’s Pullback Zone Ahead of the U.S. CPI Event and ECB Decision


 EUR/USD is finding it hard to recover from last week’s lows ahead of the U.S. CPI release!

With the U.S. CPI and ECB monetary policy decision ahead, we think EUR/USD may present a potential trade opportunity.

Are you also seeing what we’re seeing on the 1-hour time frame?

EUR/USD: 1-hour

If you’ve been watching EUR/USD, then you’ll know that the pair has been in a downtrend since mid-July after the pair got rejected at the 1.1250 area.

EUR/USD is now trading closer to 1.0740 after finding support at the 1.0700 psychological handle.

Can EUR/USD still extend its downtrend?

According to the Event Guide for the U.S. CPI Report, consumer inflation is expected to pick up again in August.

If consumer price pressures remain sticky high, then the Fed will have more confidence for another rate hike and/or a prolonged interest rate environment.

This may attract buying pressure for the U.S. dollar and drag EUR/USD to new monthly lows.

Meanwhile, the markets are undecided about the ECB’s decision this week. Right now it’s pretty split between a “hawkish hold” or a “hawkish hike.” EUR is barely getting bullish traction from hawkish expectations, though, partly because the ECB is running out of room with business activity markers showing slower growth.

For now, we’re looking for EUR/USD possibly extending its downswing. The 1.0775 – 1.0800 area is a good place to watch as it’s near the 1-hour chart’s R1 Pivot Point level, the 38.2% Fib retracement of last week’s pullback, and an established support from last week.

A rejection from the area opens EUR/USD to revisiting its 1.700 lows if not new September lows in the next trading sessions.

We’re also not ruling out EUR/USD turning lower from its current levels. If the pair finds resistance at the chart’s 200 SMA instead, then we can consider stop losses just above the 1.0800 entry that we’re eyeing.

However you choose to trade this setup, make sure to use a stop loss and to manage your risks according to what you see in the markets in the next trading sessions!