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Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0700.
- Add a stop-loss at 1.0500.
- Timeline: 1-2 days.
Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0500.
- Add a stop-loss at 1.0700.
The EUR/USD price has been in a consolidation phase in the past few days as investors reflected on the American and European central bank decisions. It also reacted to the decision by European ministers to cap gas prices in the region. It was trading at 1.0600, which was slightly lower than this week’s high of 1.0735.
EU to cap gas prices
The European gas crisis could get worse in the coming months if the European Parliament passes the new proposal by ministers. Ministers of the bloc voted to cap gas prices in the bloc when they hit 180 euros per megawatt for three days. That ceiling was about 100 euros less than what the European Commission suggested a few months ago.
The deal means that some gas traders could be forced to find other markets that are willing to pay higher prices. Hungary voted against the measure while Austria and Netherlands voted against it. According to ICE, more traders will move to over-the-counter (OTC), which are less regulated. Europe needs stable gas supplies now that Russia has decided to cut its supplies.
The vote came a few days after the European Central Bank (ECB) decided to hike interest rates by 0.50%. In its statement, the bank said that it will continue hiking interest rates in the coming months. Like the Federal Reserve, the ECB will start implementing quantitative tightening (QT) policies in March.
The EUR/USD also reacted mildly to the latest German business confidence data. Business expectations rose from 80.2 in November to 83.2 in December. In the same period, the current assessment increased from 93.2 to 94.4 while the Ifo business climate rose to 88.6. Business sentiment is an important metric because of the jobs they create.
The next data to watch will be the latest American business permits and housing starts data. Economists expect these numbers to reveal that permits and starts dropped in November,
EUR/USD forecast
The four-hour chart shows that the EUR/USD price has been in a consolidation phase in the past few days. It is trading at 1.0600, which is along the lower side of the rising channel. The pair is also consolidating at the 25-day and 50-day moving averages while the MACD has moved to the neutral point.
Therefore, the pair will likely rebound as buyers target the upper side of the channel at 1.0700. A drop below the support at 1.0555 will invalidate the bullish view.
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