Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0850.
- Add a stop-loss at 1.1025.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0965 and a take-profit at 1.1035.
- Add a stop-loss at 1.0900.
The EUR/USD exchange rate held steady near its highest level this month after a hawkish statement by Christine Lagarde, the head of the European Central Bank (ECB). The pair was trading at 1.0947, a few pips below this month’s high of 1.0965. It has surged by over 4.75% from its lowest point in October.
Hawkish ECB statement
The EUR/USD pair did well in the overnight session after Christine Lagarde hinted that the bank would discuss speeding its shrinkage of its balance sheet by ending its last bond purchases earlier than planned. Like the Fed, the ECB has been shrinking its balance sheet through a process known as Quantitative Tightening.
The statement is a sign that the ECB is planning further tightening even after initial data revealed that inflation was still falling. Economists polled by Reuters believe that inflation remained below 3% in November as energy prices fell.
The EUR/USD pair also reacted to mixed housing data from the United States. The data revealed that building permits rose by 1.8% in October, higher than the expected 1.1%. In total, building permits stood at over 1.49 million.
New home sales, on the other hand, continued slipping even as mortgage sales dropped. Sales dropped by 5.5% YoY in October to 679k. The decline was worse than the median estimate of 4.5%. In most cases, impact of low mortgage rates take time to be felt in the housing market.
The next important EUR/USD news will be the upcoming US consumer confidence data by Conference Board. Economists expect the data to show that consumer confidence dropped from 102.6 in October to 101 in November. Consumer confidence is an important number because it impacts spending by households. The US will also publish the latest house price index data.
EUR/USD technical analysis
The EUR/USD pair has been in an uptrend in the past few weeks. It has risen from last month’s low of 1.0450 to 1.0965. It has remained above the 50-period moving average on the four-hour chart. It is also higher than the Ichimoku cloud.
Also, the pair is hovering at the 61.8% Fibonacci Retracement point. Most importantly, it has formed a small double-top pattern whose neckline is at 1.0850. Therefore, there are two likely scenarios.
First, the pair could play out the double-top pattern and retreat to the neckline at 1.0850. The other scenario is where it blasts past the double-top point at 1.0965 and continues the uptrend.
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