Despite the recent decline, there are signs that the pair will bounce back in the near term.
Buy the EUR/USD pair and set a take-profit at 1.1350.
Add a stop-loss at 1.1150.
Timeline: 1-2 days.
Set a sell-stop at 1.1220 and a take-profit at 1.1150.
Add a stop-loss at 1.1300
The EUR/USD pair tilted lower on Wednesday morning as investors reflected on the leadership change in Germany and the rising number of infections. It is trading at 1.1250, which is about 1.2% below the highest point last week.
Olaf Scholz to Become Chancellor
On Tuesday, Olaf Scholz signed a coalition agreement with the Green and Free Democrats party. This will be followed by a vote in the country’s parliament today that will see him become the country’s next chancellor. This is a notable move since he will be the country’s leader who will replace Angela Merkel who has been around for 16 years.
Scholz inherits a country that is having a number of challenges. The number of Covid-19 cases has jumped sharply in the past few weeks. Also, the country’s debt has jumped due to the pandemic. Most importantly, inflation is rising, helped by higher natural gas prices. Still, I don’t think that his swearing-in will have an impact on the EUR/USD pair.
The pair also declined as the number of Covid-19 cases in key countries like France and Germany rose. France has gone further and announced new restrictions such as closure of bars and mask mandates for students. The government also encouraged businesses to allow their staff to work from home.
These actions could interrupt the recovery of the Eurozone economy. On Tuesday, data by Eurostat showed that the bloc’s economy rose by 3.9% in the third quarter. The IMF also said that the bloc’s economy had moved to pre-pandemic levels.
Therefore, as the number of cases rises, there is a likelihood that the ECB will be more patient. We will get some of these clues on Wednesday when Christine Lagard speaks.
The three-hour chart shows that the EUR/USD pair has been in a bearish trend in the past few days. As a result, it has moved from the standard pivot point to its first support. It has also formed a descending channel. The price is slightly above the lower side of this channel. It has also moved below the 25-day moving average. Most importantly, the pair has formed an inverted head and shoulders pattern.
Therefore, despite the recent decline, there are signs that the pair will bounce back in the near term. If this happens, the next key level to watch will be at 1.1350.