Bearish Amid Muted EU Growth Prospects

Will bears prevail today?

Bearish View

• Sell the EUR/USD and set a take-profit at 1.0850.
• Add a stop-loss 1.1075.
• Timeline: 1-2 days.

Bullish View

• Buy the EUR/USD and set a take-profit at 1.1090.
• Add a stop-loss at 1.0900.

The EUR/USD pair downward trend continued on Monday and Tuesday morning as the European Union considered more sanctions on Russia. The pair declined to a low of 1.0980, which was the lowest point since March 28th.

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EU Economic Slowdown

The ongoing crisis in Ukraine will have a major impact on the Eurozone economy because of its vast exposure to Russia. Most countries in the European Union buy a lot of raw materials from Russia. For example, Austria imports about 80% of its natural gas from Russia. Similarly, Germany buys about 40% of its gas from the country.

Russia is also a major source of raw materials used in the manufacture of key machinery. For example, it is one of the biggest sources of important commodities like platinum and palladium that are used to manufacture catalyctic converter. These converters are used to lower emissions in automobiles. It is also a key source of steel, aluminium, coal, and wheat.

Therefore, there is a likelihood that the bloc will see more weakness in the coming months. For one, Russia has insisted that it will only sell its natural gas from “unfriendly” countries in rubles. The government has also said that it will consider putting the same conditions for other items.

As such, the EUR/USD pair has dropped because analysts expect that the bloc’s economy will underperform. This performance will then hinder the European Central Bank (ECB) from being aggressive in its rate hikes.

At the same time, analysts expect that the Fed will be more aggressive considering that the rate of American inflation has soared while the unemployment rate has dropped to 3.6%. In multiple statements, Fed officials have sounded optimistic about implementing 0.50% hike in May.

The key data to watch from the EU and US will be the latest services and composite PMI numbers. Analysts expect that these numbers will be a bit strong.

EUR/USD Forecast

The three-hour chart shows that the EUR/USD pair has formed an ascending channel that is shown in green. It is now at the lower side of this channel and moved below the 50-day volume-weighted moving average (VWMA). The Relative Strength Index has moved below the oversold level while the MACD has dropped below the oversold level.

Therefore, the pair has two likely scenarios. First, bears could prevail and push it below the lower side of the channel. Alternatively, it could rise and retest the upper side of the channel at 1.1200.