Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0980.
- Add a stop-loss at 1.0800.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.0860 and a take-profit at 1.0800.
- Add a stop-loss at 1.0950.
The EUR/USD pair drifted downwards after the encouraging Chinese industrial production numbers. It also declined slightly after the February Consumer Price Index (CPI) data. It retreated to 1.0868 as the US dollar index (DXY) continued rising.
US dollar is rising
The EUR/USD exchange rate retreated as the US dollar index continued rising. The index, which tracks the greenback against a basket of currencies, rose by 20 basis points to $103.25.
Further, US bond yields continued rising. The 10-year yield rose to 4.34% while the 30-year yield jumped to 4.46%. The two yields have jumped to their highest level in months ahead of the Fed decision.
This price action is a sign that hopes of more Fed cuts have started to fade. For example, data in the swap market is predicting that the Fed may not even cut rates in June since inflation is not falling at a fast pace as expected.
Data released last week showed that inflation remained above 3% in February, 100 basis points above its 2% target. Core inflation has remained almost 3.8% in February and will likely take time before moving to the target of 2.0%.
The EUR/USD pair also retreated slightly after China published strong industrial production data, which signaled that the economy was improving. The production rose by 7% in February, higher than the median estimate of 5.3%.
The other important data came from Europe, which published the latest inflation numbers. According to Eurostat, the headline CPI rose by 0.6% in February after sliding by 0.4% in January. The CPI rose by 2.6% after growing by 2.8% in January. These numbers mean that the bloc’s inflation remains stubbornly high in February.
Europe also published strong trade numbers as the trade surplus surged to a record high. This surplus increased as the bloc’s energy imports retreated and exports rose slightly.
EUR/USD technical analysis
The EUR/USD pair rose to a high of 1.0981 last week and then retreated to a low of 1.0870, which is a few pips above the 50-day Exponential Moving Average (EMA). It has also moved between the first and second support lines of the Andrew’s Pitchfork tool.
The RSI and the MACD have pointed downwards, which is a sign that bears are gaining momentum. Therefore, with the pair hovering at the 50-day EMA, there is a likelihood that it will bounce back slightly on Tuesday. If this happens, the point to watch will be at 1.0980.
The alternative scenario is where it drops below the 50-day moving average. If this happens, it will likely drop to the next point at 1.0800.
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