Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0800.
- Add a stop-loss at 1.0950.
- Timeline: 1 day.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0965.
- Add a stop-loss at 1.0800.
The EUR/USD exchange rate bounced back to its highest point since August 31st after the weak US consumer inflation data. The pair surged to a high of 1.0875, which was over 4% from the lowest point in September.
US inflation and GDP data
The EUR/USD pair continued rising after the latest European GDP data. According to Eurostat, the bloc’s economy contracted by 0.1% in the third quarter, in line with expectations. This contraction translated to a YoY growth of 0.1%.
Further data revealed that the bloc’s employment change rose by 0.3% on a QoQ basis and by 1.4% on a YoY basis. These numbers were stronger than the median estimate of 0.1% and 1.2%, respectively.
The biggest news was the latest US Consumer Price Index (CPI) data. According to the statistics agency, the country’s inflation dropped from 0.4% to 0.0% in October, lower than the median estimate of 0.1%.
The headline CPI also dropped from 3.7% to 3.2%, lower than the expected 3.3%. Another report showed that the core CPI dropped from 0.3% to 0.2% on a MoM basis. This drop also led to a YoY drop of 4.0%.
These numbers are a sign that the Fed’s actions to fight inflation are working. Therefore, analysts expect that the bank will hold rates at the current level in December and then cut them in 2024.
This explains why the fear and greed index has moved to the greed zone while the VIX index retreated to the lowest point in months. Also, American stocks have jumped to their highest level in weeks while bond yields have plunged.
The next economic data to watch will be the latest US retail sales and Producer Price Index (PPI) data. Expectations are that the headline PPI dropped in October while retail sales held steady.
EUR/USD technical analysis
The EUR/USD exchange rate made a bullish breakout, validating the broadening wedge that has been forming since October. In most periods, this pattern is one of the most popular bullish signs. It has jumped above the 50% Fibonacci Retracement level. The pair has moved above the crucial resistance level at 1.0756, the highest point on November 6th.
It has also moved above the 50-period and 25-period moving averages. The Relative Strength Index (RSI) has soared to the overbought point of 80. Therefore, the pair will likely retest the upper side of the wedge at 1.0800 and then resume the bullish trend.
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