The EUR/USD exchange rate is in a bearish trend, with the pair trading at 1.1650, a significant drop from its monthly high of 1.1850. This downward movement is primarily attributed to the surge in US and European bond yields, with the ten-year US bond yield reaching 4.63% and short-term yields soaring to 4.1%. The Federal Reserve's decision to maintain high interest rates for an extended period, despite the leadership of Kevin Warsh, is a key factor in this trend. The upcoming publication of the FOMC minutes on Wednesday is expected to further pressure the EUR/USD pair.
The US dollar index (DXY) has also seen a notable rise, jumping from $97.30 to nearly $100, following the release of consumer and producer inflation reports. These reports showed a headline CPI of 3.8% and a PPI of 6.0%, contributing to the higher bond yields. The EUR/USD pair is likely to continue its downward trajectory, with the neckline at 1.1658 and the psychological level at 1.1500 as key resistance and support points, respectively.
The technical analysis reveals a bearish reversal pattern, with the EUR/USD pair forming a double-top and a head-and-shoulders pattern. The break below the 100-day moving average further confirms the bearish sentiment. The potential downside targets are 1.1482, which aligns with the head-and-shoulders neckline, and possibly lower.
In conclusion, the EUR/USD pair is expected to remain under pressure, with the bearish patterns and rising bond yields indicating a continued downward trend. Traders are advised to consider the sell signal and set appropriate stop-loss and take-profit levels to manage risk effectively.
