Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0800.
- Add a stop-loss at 1.1100.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.100.
- Add a stop-loss at 1.0825.
The EUR/USD pair drifted upwards after the relatively dovish Federal Reserve decision. The pair rose to 1.0900, its highest point since December 4th as focus shifts to the upcoming European Central Bank (ECB) decision.
ECB decision ahead
The US dollar index and bond yields retreated after the last Fed decision of the year. In it, the bank left rates unchanged between 5.25% and 5.50% as most analysts were expecting. However, the closely watched dot plot pointed to about three rate cuts in 2024.
As a result, yields of the 10-year Treasuries retreated to 4.07% while the 30-year and 5-year fell to 4.27% and 4.18%, respectively. The US dollar index, which measures the strength of the greenback, dropped by 0.67% to $102.78.
At the same time, American equities continued rising, with the Dow Jones and S&P 500 indices rising by over 0.70%. This performance happened as traders embraced a risk-on sentiment.
Still, Jerome Powell, the Fed Chair, also pushed back against rate cuts hopes in the press conference. While acknowledging that inflation had fallen, he warned that it remained higher than its target of 2.0%.
Data published on Tuesday showed that the headline inflation dropped to 3.1% while the core one remained unchanged at 4.0%.
The next key EUR/USD news will be the European Central Bank decision. Like the Fed, the ECB will likely deliver a dovish tone because of the performance of the European economy. Inflation in the bloc has dropped to 2.4%, helped by the tumbling energy prices.
At the same time, there are signs that the bloc is heading to a recession as growth falls. The most recent manufacturing and services PMI numbers showed that the bloc was struggling as they remained below 50.
EUR/USD technical analysis
The EUR/USD pair bounced back after the relatively dovish Fed decision. It rose to the important psychological point at 1.0900. This price was also at the 23.6% Fibonacci Retracement point. As it rose, the pair rose above the 25-period and 50-period moving averages.
It also flipped the resistance at 1.0825 into a support. This was an important price since it was the neckline of the small inverted head and shoulders pattern. At the same time, the Relative Strength Index (RSI) moved to the overbought level. Therefore, the pair will likely retreat and retest the support at 1.0825 and then resume the uptrend.
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