Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0925.
- Add a stop-loss at 1.0850.
- Timeline: 1-2 days.
Bearish view
- Set a buy-stop at 1.0900 and a take-profit at 1.0950.
- Add a stop-loss at 1.0850.
The euro came under intense pressure against the US dollar after strong inflation reports triggered a strong risk-off sentiment. The EUR/USD pair retreated from this month’s high of 1.0980 to below 1.0900.
Europe inflation and Fed decision
A risk-on sentiment prevailed after the US published strong consumer and producer inflation numbers. The core consumer inflation rose by 3.8% in February, near double the Fed target of 2.0%.
Similarly, the Producer Price Index (PPI) was also hotter than expected. It rose to 1.6% in February, higher than the previous 1.1%. These numbers show that inflation is not falling at a faster pace like the Fed was anticipating.
Therefore, most risk assets tumbled as market participants changed their Fed rate cuts target. US equities continued falling, with the Dow Jones crashing by over 200 points on Friday. The Nasdaq 100 and S&P 500 indices fell by over 0.50%.
Meanwhile, the bond market also reacted to the strong inflation numbers. The yield of the 10-year rose to 4.30% while the 30-year jumped to 4.4%. The two yields were below 4% a few months ago.
Therefore, focus among traders shifts to the upcoming Federal Reserve decision. The Fed is at a crossroad considering that the economic growth is slowing while inflation remains stubbornly high.
The other important EUR/USD news will be the upcoming European inflation report. Based on the initial estimate, analysts expect the report to show that the headline inflation rose to 2.6% in February from 2.8% in January. Core inflation is expected to come in at 3.1%, also higher than the ECB target of 2.0%.
These numbers will likely not have a major impact on the EUR/USD pair since the ECB has already delivered its interest rate decision. The bank also decided to leave rates unchanged and hinted that it would start cutting rates in June or May.
EUR/USD technical analysis
The EUR/USD pair retreated sharply after the strong US inflation report. It dropped and landed to the ascending trendline, which connects the lowest swings since February 14th. This line could form an important support level since it is also slightly above the first support of the Woodie pivot point.
The pair has slipped below the 50-period moving average and the 50% Fibonacci Retracement point. Therefore, more downsides will be confirmed if the pair drops below the ascending trendline. If this happens, it will likely drop to the support at 1.0850.
The alternative scenario is where the pair bounces above the trendline as bulls attempt to move above the resistance at 1.0900.
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