Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0410.
- Add a stop-loss at 1.0780.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.0880 and a take-profit at 1.0750.
- Add a stop-loss at 1.0950.
The EUR/USD rallied to the highest point since February after the US published March’s inflation numbers. It jumped to a high of 1.100, which was ~15% above the lowest point in 2022. It also rose after the latest Federal Reserve minutes.
US inflation data
The main catalyst for the EUR/USD was the latest inflation data published on Wednesday. According to the Bureau of Labor Statistics, the numbers revealed that consumer prices were still dropping, signaling that the Fed’s actions to tame inflation were working.
The headline consumer price index dropped from 0.4% in February to 0.1% in March. That was a bigger decline than the median estimate of 0.2%. On a year-on-year basis, inflation fell to 5.0%, the lowest level since 2021.
The closely-watched core inflation also dropped from the previous month to 0.4%. But it inched upwards slightly to 5.6%. Therefore, these numbers mean that the Federal Reserve will likely hike interest rates in May of this year. Most economists expect a 0.25% increase followed by a strategic pause.
The EUR/USD pair also reacted to the latest Fed minutes. In it, Fed officials said that they believe that the banking crisis will likely lead the US to a mild recession this year. The concern is that more regional banks will start boosting their balance sheets and reducing lending. The statement said:
“The staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years.”
Therefore, fears of a recession, coupled with falling recession means that the Fed will likely find it difficult to tighten further. It also raise the possibility of a rate cut in the fourth quarter or in 2024.
The key economic numbers to watch on Thursday will be inflation figures from Germany and Ireland. The US will also publish the latest producer price index numbers.
EUR/USD technical analysis
The EUR/USD pair has been in a bullish trend in the past few months and is now approaching the important resistance level at 1.1030, the highest point in February. It has jumped above the ascending trendline shown in orange and the 50-day moving average. The MACD and other oscillators have continued rising.
Therefore, the pair will likely continue rising in the coming days but this view will be confirmed if it moves above 1.0300. This price is the upper side of the double-top. A move above it will open the possibility of the pair rising above the resistance at 1.0500.
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