Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0650.
- Add a stop-loss at 1.0765.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0725 and a take-profit at 1.0820.
- Add a stop-loss at 1.0650.
The EUR/USD pair retreated below the bearish flag pattern as the US dollar index (DXY) surged to its highest point in three months. The exchange rate dropped to the psychological point at 1.0700, its lowest point since November 14th.
US inflation remains high
The EUR/USD pair continued falling as traders embraced a risk-on sentiment after the US inflation data. Data revealed that the headline Consumer Price Index (CPI) rose from 0.2% in December to 0.3% in January. This increase translated to a YoY jump of 3.1%, higher than the expected 2.9%.
Core inflation rose by 3.9% YoY and by 0.4% MoM. These numbers are evidence that it will take a longer period for inflation to move to the Fed’s target of 2.0%. Most items in the US continued to see higher prices, including housing, car insurance and medical care continued rising.
The inflation report came a few days after the US published strong jobs numbers. The economy added over 350k jobs in January as the jobless rate remained at 3.7%. Therefore, these numbers mean that the economy is doing modestly well.
The implication is that the Federal Reserve will not be in a hurry to cut interest rates as most analysts were expecting. The first cut will likely happen in June. On the other hand, the European Central Bank (ECB) will likely slash rates sooner.
That’s because Europe’s inflation is falling at a faster phase than in the US. Worse, many countries in the bloc, especially Germany, are in a deep slowdown.
The key EUR/USD news to watch will be the second estimate from Europe. Economists expect the data to show that the economy stalled in Q4. Eurostat will also release the latest weak industrial production data.
EUR/USD technical analysis
The EUR/USD pair made a strong bearish breakout this week. It moved below the lower side of the bearish flag pattern. The pair also retreated below the support at 1.0723, its lowest point on February 6th. It has moved below the 50-period and 25-period moving averages while the MACD indicator has pointed downwards.
The pair retested the first support of the Woodie pivot point. Therefore, the pair will likely continue falling as sellers target the key point at 1.06500. The stop-loss of this trade is at 1.0755.
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