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EUR/USD Forex Signal: Bearish Flag Pattern Forms – 20 September 2022

The pair has formed a bearish flag pattern that is shown in black.


Bearish view

Sell the EUR/USD pair and set a take-profit at 0.9850.Add a stop-loss at 1.0050.Timeline: 1-2 days.

Bullish view

Set a buy-stop at 1.0040 and a take-profit at 1.0100.Add a stop-loss at 0.9950.

The EUR/USD price remained in a tight range close to its lowest level in 20 years as focus shifted to the upcoming Fed decision and Christine Lagarde’s statement. It was trading at 1.00 on Tuesday morning, meaning that the euro has crashed by 12% this year.

Rising bond yields

The EUR/USD pair remained under intense pressure as the bond sell-off continued. In the US, the ten-year bond yield rose to 3.45% while the 30-year rose to 3.50%. Bond yields have risen as expectations for a more hawkish Federal Reserve continue.

The headline for the week will be the monetary policy meeting by the Fed that starts later on Tuesday. This meeting comes a week after the US published stronger-than-expected consumer and producer inflation data.

On Tuesday, data revealed that the headline consumer inflation rose by 8.5% as the cost of food, electricity, and rent remained at an elevated level. This increase was partially offset by the falling gasoline prices.

Therefore, analysts expect that the Fed will continue hiking interest rates this week. Some believe that the bank will hike by 0.75% for the third straight month. At the same time, some analysts expect that the bank will be more forceful and hike by 100 basis points. Analysts at Nomura expect the terminal rate rising to 4.75% while those at Deutsche Bank see it rising to 5%.

The EUR/USD price will react to the housing data scheduled for Tuesday. Analysts expect the data to show that housing starts dropped from 1.446 million in July to 1.445 million in August. Similarly, they believe that building permits fell to 1.610 million as interest rates soared.

The other important catalyst for the pair will be a statement by Christine Lagarde. In her first statement after the ECB hiked this month, she will likely warn about the rising risks to Europe’s economy and ECB’s policies.

EUR/USD forecast

The four-hour chart shows that the EUR/USD pair has been in a tight range in the past few days. In this period, it has continued to oscillate at the parity level of 1.000. It is also trading at the 25-day and 50-day moving averages.

The pair has formed a bearish flag pattern that is shown in black. Therefore, there is a likelihood that the pair will have a bearish breakout ahead of the upcoming Fed decision. If this happens, the next key reference level will be 0.9850.

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