Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0800.
- Add a stop-loss at 1.0950.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0900 and a take-profit at 1.100.
- Add a stop-loss at 1.0800.
The EUR/USD exchange rate continued its sell-off ahead of the upcoming European inflation and US retail sales data. It plunged to a low of 1.0870, the lowest swing since December 13th. The pair has crashed hard from the year-to-date high of 1.1140 as the US dollar bounced back.
Europe inflation and US retail sales data
The EUR/USD pair continued falling as several European Central Bank (ECB) officials warned about interest rates. In a statement on Tuesday, Villeroy de Galhau, the head of the French central bank warned that it was too early to declare victory about rate cuts. He hinted that the next move by the bank would be a cut but warned that it would take time before that happened.
Several other ECB officials, including the Finnish central bank head, said that the bank should maintain a restrictive policy for a while. In a recent FT survey, most economists predicted that the first ECB cuts would happen in the second quarter of the year.
The next key EUR/USD news will be the final reading of the region’s inflation numbers. Based on the first estimate, analysts expect the data to reveal that the headline CPI moved from -0.6% in November to 0.2% in December. This will translate to a 2.9% YoY increase, higher than the previous month’s 2.4%.
Further, economists expect the core CPI will come in at 3.4%, lower than November’s 3.6%. These numbers will mean that inflation was holding steady above the ECB’s target of 2.0%. A higher inflation reading than expected will point to a more restrictive ECB.
The other important EUR/USD news will be the upcoming retail sales numbers. Economists expect the data to show that the headline retail sales rose by 0.4% in December while core sales rose by 0.2% on a MoM basis. These numbers will come a week after the US released strong inflation figures.
EUR/USD forecast
The EUR/USD pair made a bearish breakout as the US dollar index continued falling. It dropped below the lower side of the bearish flag pattern, which is a popular sign of a continuation. This pattern is characterized by a long vertical line and a rectangle pattern. It has remained below the 50-period moving average while the Relative Strength Index (RSI) has dropped to the oversold level.
The pair also flipped the key support at 1.0880 (January 5th low) into a resistance. Therefore, the outlook for the EUR/USD price is bearish, with the next point to watch will be at 1.0750.
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