Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0750.
- Add a stop-loss at 1.0860.
- Timeline: 1.2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0870.
- Add a stop-loss at 1.0750.
The EUR/USD price retreated slightly after the Federal Reserve delivered a relatively hawkish pause on Wednesday. After initially soaring to 1.0885, the pair pulled back to 1.0800, its lowest level since December 13th.
European inflation data ahead
The Federal Reserve left interest rates intact between 5.25% and 5.50% as was widely expected. The only change in the statement was that the bank was committed to hold high interest rates for longer since inflation remains higher than its 2% target.
In the accompanying statement, the Fed said that it will be data-dependent when making its next rate decision. In this case, there is a likelihood that the bank will take time before it cuts rates because inflation is still higher than estimates. For one, the price of energy and shipping costs have surged.
The economy is also doing well, with the manufacturing PMI rising above 50 in January. Retail sales and consumer confidence have also risen sharply in the past few weeks, signaling that this growth will continue.
The next important EUR/USD news will be the upcoming European consumer inflation data. Economists polled by Reuters expect the data to show that the core CPI declined from 3.4% in December to 3.20% in January. The headline CPI is expected to move from 3.4% to 3.2%. If these numbers are correct, it will raise the possibility of an ECB rate cut in the first half of the year.
The next key economic data to watch will be the US ISM manufacturing PMI and initial and continuing jobless claims data. These numbers will come a day ahead of the upcoming Non-Farm Payrolls (NFP) data. That report will provide more information on the state of the economy.
EUR/USD technical analysis
The EUR/USD exchange rate formed an inverted hammer pattern on Wednesday ahead of the Fed decision. In technical analysis, this is one of the most bearish patterns in the market, which explains why it made a bearish breakout.
The pair has moved below the 25-day Exponential Moving Average (EMA). It also retested the lower side of the descending channel. Also, the pair dropped below the Ichimoku cloud indicator.
Therefore, the outlook for the pair is bearish after the hawkish Fed decision. If this forecast is accurate, the next price to watch will be at 1.0750.
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