Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0880.
- Add a stop-loss at 1.0955.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0935 and a take-profit at 1.1000.
- Add a stop-loss at 1.0875.
The EUR/USD exchange rate rose slightly ahead of the upcoming European consumer inflation and US housing data. It bounced to a high of 1.0925, which was a few points above last Friday’s low of 1.0880.
European inflation data ahead
The EUR/USD pair has been in the spotlight in the past few days as the European Central Bank (ECB) and the Federal Reserve delivered their final decisions of the year. As expected, the banks left rates unchanged but delivered different tone.
In the US, the Fed pointed to three rate cuts in 2024 as it declared victory on inflation, which has fallen to 3.1%. The ECB, on the other hand, noted that it would maintain high rates for a while.
A lot has happened since then. Several Fed officials have pushed back against against the notion that rate cuts will come as early as in March. John Williams and Austan Goolsbee have warned that inflation is still at an elevated level.
Meanwhile, European economic numbers showed that the bloc was not doing well. The flash composite PMI dropped to 47 in December, lower than the median estimate of 48. It has contracted in the past seven straight months.
The next key EUR/USD news to watch will be the upcoming European inflation data. Economists expect the data to show that the headline CPI dropped by 0.5% in November after growing by 0.1% in the previous month.
On a YoY basis, economists see the headline CPI falling from 2.9% to 2.4%. Core inflation is also expected to come in at minus 0.6% (MoM) and 3.6% (YoY). These numbers mean that the country’s inflation is moving in the right direction, pointing to lower rate cuts.
The US will publish the latest building permits and housing starts numbers. While these numbers are important, their impact on the US dollar will be limited.
EUR/USD technical analysis
The EUR/USD pair tumbled on Friday as traders questioned the predictions of Fed officials. It dropped after forming a double-top pattern at 1.1000. The pair remains above the 50-period Exponential Moving Average (EMA) and the 50-period Exponential Moving Average.
It also remains above the 23.6% Fibonacci Retracement level. It has also formed a bearish flag pattern. Therefore, the pair will likely have a bearish breakout as traders target the 23.6% retracement point at 1.0880.
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