Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0850.
- Add a stop-loss at 1.100.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0940 and a take-profit at 1.1050.
- Add a stop-loss at 1.0850.
The EUR/USD exchange rate reacted mildly to the December Fed minutes published during the American session. It continued its retreat and reached a low of 1.0895, its lowest level since December 19th.
German inflation and US NFP data ahead
Minutes of the Fed showed that most committee members agreed that it would be necessary to maintain restrictive rates for a while. They also noted that rate cuts would be needed in 2024 in a bid to supercharge the economy.
In that meeting, the committee voted unanimously to maintain interest rates unchanged between 5.25% and 5.50%. The accompanying dot plot pointed to at least three rate cuts later this year.
In a separate statement on Wednesday, Fed’s Thomas Barkin reiterated the view that the Fed will continue focusing on incoming data when making its next decisions. In this case, the bank could consider hiking rates if inflation remains high for longer.
There are chances that inflation will remain above Fed’s target of 2.0% for a while. For one, the ongoing crisis in the Middle East has pushed the price of crude oil substantially higher. Shipping costs are also rising as companies like Maersk and Evergreen avoid the shorter Red Sea route. They are now using the longer Cape of Good Hope route, which is more expensive.
The next key EUR/USD news will be the upcoming German inflation data. Economists expect the data to show that the country’s inflation rose from 3.2% in November to 3.7% in December. The closely-watched harmonised inflation figure is expected to come in at 3.8%.
In the US, ADP will publish the latest private payrolls data. Economists expect the report to show that the private sector added 115k jobs in December. These numbers will come a day ahead of the official NFP numbers.
EUR/USD technical analysis
The EUR/USD pair continued its downtrend as traders embraced a risk-on sentiment. It has now moved below the Ichimoku cloud indicator and the 50-period moving average. The pair also flipped the key support at 1.1017 into a resistance. This was an important price since it was the highest swing in November and December 14th.
The Relative Strength Index (RSI) has dropped to the oversold level. Therefore, the outlook for the pair is still bearish, with the next point to watch being at 1.0850. This price is along the ascending trendline that connects the lowest swings since October.
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