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Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.100.
- Add a stop-loss at 1.0800.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.0845 and a take-profit at 1.0750.
- Add a stop-loss at 1.0950.
The EUR/USD exchange rate continued its uptrend after the Federal Reserve and the European Central Bank (ECB) diverged on interest rates. The pair jumped to a high of 1.0900, the highest point since February 3 of this year.
ECB and Fed divergence
The European Central Bank delivered a relatively hawkish decision last week when it decided to hike by 0.50 %. This was a surprise since it came in the same week that Credit Suisse, a large Swiss bank, was on life support. The officials also noted that further rate hikes were possible since inflation remains a major threat to the bloc's economy.
ECB officials feel vindicated about the rate hike since European banks have withstood the turmoil in the banking sector. Many banks in the region have seen their share prices resume an uptrend, partly because of their high capital reserves. As a result, the money market has baked in another 0.50% hike when the bank meets in May.
On the other hand, the Federal Reserve delivered a mixed interest rate decision on Wednesday. The bank decided to hike by another 0.25%, which was lower than what Jerome Powell hinted two weeks ago. Some Fed officials supported pausing the interest rate hikes.
There will be no major economic data from the US and the United States on Thursday. Therefore, the pair's performance will reflect the actions of the Fed. This explains why the US dollar index has pulled back to $101.7 and stock futures are in the green. Futures tied to the Dow Jones have jumped by 150 points while bond yields have slipped. The 10-year and 2-year bond yields have dropped to 3.45% and 3.63%, respectively.
The US will publish the latest new home sales numbers but their impact on the pair will be limited. Economists expect the data to show that new home sales dropped from 670k to 650k.
EUR/USD technical analysis
The EUR/USD pair has been in a strong bullish trend in the past few weeks. It has managed to move above the key resistance level at 1.0806, the highest point on February 14. It also jumped above the key point at 1.0753.
The uptrend is supported by the 50-period moving average while the Average Directional Index (ADX) has jumped to 26. The Relative Strength Index has moved to the overbought level of 80. Therefore, the bullish momentum will likely continue as buyers target the key level at 1.100.
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