Bearish ideas
Short the EUR/USD due to the bearish trend.
Have a take profit at the 38.2% retracement at 1.2060.
Add a stop loss at 1.2250.
Timeline: 1 – 2 weeks.
Bullish ideas
Set a buy stop at 1.2200.
Add a take profit at 1.2250.
Set a stop loss at 1.2150.
The EUR/USD price is down for the fourth straight day in a row as the strong dollar theme continues. This is the longest losing streak for the pair. It is trading at 1.2146, which is 1.6% above the year-to-date high of 1.2353.
Strong Dollar Weighs On the Euro
The overall theme in the market in the past few days has been about the stronger US dollar. The US Dollar Index has rallied by more than 1% in the past few days, while US treasury yields have continued to rise. The currency has risen against all peers, including the Swiss franc, Japanese yen, and sterling.
This price action is mostly because of the rising coronavirus cases in some European countries and China. In the UK, the number of new infections has continued to surge in recent days, which has pushed the government to consider more lockdowns.
Elsewhere, in China, the government has placed a lockdown in some parts of Hebei province to slow the spread. These cases risks slowing the global economy in the first quarter of the year even as countries continue with their vaccination efforts.
The EUR/USD is also falling because of the political uncertainties in the United States. Yesterday, Democrats in the House of Representative launched their second impeachment effort against President Trump. They blame him for instigating last week’s violence at Capitol Hill.
Meanwhile, Joe Biden is expected to announce his multi-trillion dollar stimulus plan on Thursday this week. This plan will possibly have more stimulus checks and funds for businesses. He will also likely talk about infrastructure.
Ideally, such stimulus would be bullish for the EUR/USD price. However, it also risks overheating the American economy leading to rate hikes faster than initially expected. In its recent rates decision, the Fed has signalled that rates will remain low for at least three years.
EUR/USD Technical Outlook
On the four-hour chart, the EUR/USD moved below the rising trendline on January 8. The 25-periond and 15-period exponential moving averages (EMAs) also made a bearish crossover. The pair has also moved below the 23.6% Fibonacci retracement level while oscillators have continued falling.
Therefore, the EUR/USD will possibly continue falling as bears target the 38.2% retracement at 1.2060. On the flip side, this prediction will be invalidated if the pair moves above the rising trendline at 1.2250.