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Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0200.
- Add a stop-loss at 1.0420.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0500.
- Add a stop-loss at 1.0250.
The EUR/USD price continued surging as investors embraced a risk-off sentiment following the weak US inflation data. It jumped to a high of 1.0358, which was the highest point since July this year. It has rebounded by over 8% from its lowest point this year.
Euro gains momentum
The EUR/USD pair had its best week since 2020 as the US dollar plunged. The US dollar index, which tracks the performance of the greenback against other currencies, has plunged by more than 8% from its highest point this year.
It has plummeted as investors started pricing in a Fed pivot in the coming months as inflation starts moving in the right direction. Data published by the Bureau of Labor Statistics (BLS) revealed that the headline and core inflation declined sharply last month.
The headline inflation dropped from 8.3% to 7.7% while core inflation retreated to 6.3%. Prices of most items appear to have peaked, with the average gasoline price hovering at $3.12. It peaked at $5 a few months ago.
Therefore, there is a likelihood that the Fed will start pivoting in its final meeting of the year. Such a pivot will involve slowing the pace of its rate hikes to 0.50%. In a statement last week, Patrick Harker of Philadelphia Fed said that he will back a smaller rate increase in the coming meetings. He said:
“In the upcoming months, in light of the cumulative tightening we have achieved, I expect we will slow the pace of our rate hikes as we approach a sufficiently restrictive stance.”
Other Fed officials are also supportive of moving from 0.75% hikes. Larie Logan of Dallas and Lorett Master of Cleveland said that the bank should slow its rate hikes. The Fed’s rate monitor tool expects that rates will rise by 0.50% in December.
EUR/USD forecast
The four-hour chart shows that the EUR/USD pair has been in a strong bullish trend after it crashed to a low of 0.9541 in September. It managed to move above the important resistance level at 1.0094, the highest point on October 26. The pair has moved above all moving averages.
The Stochastic Oscillator and the Relative Strength Index (RSI) have moved above the overbought level. Therefore, while the bullish trend will continue, I suspect that the pair will take a breather as traders take profits. If this happens, it could retest the support at 1.0200.
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