Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0650.
- Add a stop-loss at 1.0830.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0790 and a take-profit at 1.0850.
- Add a stop-loss at 1.0700.
A risk-on sentiment resumed in the market as the fears of higher rates for longer waned. The EUR/USD exchange rate remained at 1.0765, a few points above this week’s low of 1.0725. It remains much lower than its December high of 1.1140.
Concerns about European economy
The EUR/USD pair has retreated in the past two months as concerns about the European economy continued. Recent data has shown that Germany, the bloc’s powerhouse, continued to shrink. A report published on Wednesday showed that Germany’s industrial production continued its freefall in December. It dropped by 1.6% MoM and by 3.13% YoY, the seventh straight month of decline.
Other recent economic numbers from Germany shows that the situation is getting dire. Manufacturing PMI remains below 50 while the construction PMI figure has remained below 40 for months. Retail sales have also continued falling in the past few months.
Therefore, there is a likelihood that the European Union will intervene in the coming months by cutting interest rates. Some analysts believe that it will start lowering rates in its meeting in May of this year.
Lower interest rates will help to reboot the European economy by lowering the cost of doing business and making capital available in the banking sector.
The EUR/USD pair wavered after statements by Fed officials like Tom Barkin and Michelle Bowman. Like Jerome Powell, these officials emphasized the need for cutting interest rates later this year.
Lower rates will help to provide consumers, companies, and the government some relief now that debt has surged to a record high. Credit card debt rose by $50 billion in the fourth quarter and reached a high of 1.13 trillion. Delinquencies have also jumped recently.
There will be no major economic data on Thursday. The only numbers to watch will be the weekly initial and continuing jobless data that rarely move the pair.
EUR/USD technical analysis
The EUR/USD exchange rate has formed a bearish flag pattern whose lower side is at 1.0722. This price coincided with the lowest swing in December last year. It has also retested the lower side of the descending channel at 1.0780 and remains below the 50-period moving average on the 4-hour chart.
The Percentage Price Oscillator (PPO) remains below the neutral point. Therefore, the pair will likely have a bearish breakout in the next few days. This view will be confirmed if it moves below the key support level at 1.0722. If this happens, it will open the possibility of it crashing to the key support at 1.0650.
The alternative is a situation where the bullish rebound continues, pushing the pair to the upper side of the descending channel at 1.0850.
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