Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0815.
- Add a stop-loss at 1.0900.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0880 and a take-profit at 1.0950.
- Add a stop-loss at 1.0825.
The EUR/USD exchange rate remained under pressure on Thursday morning as traders assessed this week’s economic data and statements by policymakers. It was trading at 1.0870, its lowest point since December 13th while the US dollar index rose to $103.25.
Fed and ECB officials statements
Traders have embraced a risk-off sentiment as hopes that central banks will start cutting interest rates as soon as in March faded. This happened after the US and European countries published strong inflation numbers.
In a report published on Wednesday, Eurostat confirmed that prices rose at a faster pace than expected in December. Core CPI, which excludes the volatile food and energy prices, rose by 0.5% in December, higher than the initial estimate of 0.4%.
The headline CPI, on the other hand, rose by 0.2% and 2.9% on a MoM basis, respectively. Analysts expect that the bloc’s inflation will remain above the ECB’s target of 2.0% for a while as the crisis in the Middle East pushes transport and energy prices higher.
In a statement at Davos, Christine Lagarde reiterated what other ECB officials have said this week. She warned that it was too early to celebrate on inflation since it remains at an elevated level. She hinted that the bank will start cutting rates in the second half of the year.
The EUR/USD price also retreated after another set of strong data from the United States. According to the Commerce Department, retail sales rose by 0.6% in December, higher than the expected 0.4% while the core sales jumped by 0.1%. These numbers, coupled with this month’s NFP data signals that the economy was doing well.
Therefore, like the ECB, analysts now expect that the Fed will embrace a wait-and-see approach on inflation. This means that the bank will likely cut rates in its June meeting.
EUR/USD technical analysis
The EUR/USD pair made a strong bearish breakout on Tuesday after a hawkish statement by Christopher Waller. It moved below the lower side of the blue bearish flag pattern. It now remains below the 50-period moving average and the key support at 1.0876, the lowest swing on January 5th.
It has also formed another bearish flag pattern. Therefore, the likely outcome is where the pair makes a bearish breakout as sellers target the third support of the Woodie pivot point at 1.0815. The stop-loss of this trade will be at 1.0900.
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