Bullish View
Buy the EUR/USD and add a take-profit at 1.1385.
Add a stop-loss at 1.1150.
Timeline: 1-2 days.
Bearish View
Set a sell-stop at 1.1185 and add a take-profit at 1.1100.
Add a stop-loss at 1.1300.
The EUR/USD declined sharply during the American session after a hawkish statement by Jerome Powell. The pair crashed to a low of 1.1240, which was about 1.27% below the highest level this week as the Omicron concerns remained.
Eurozone Inflation Rising
Like in the United States, consumer prices in Europe are surging as energy prices rise and supply disruptions remain. On Tuesday, data published by Eurostat showed that consumer prices in the Eurozone rose by 4.9% on a year-on-year basis. This was significantly higher than the previous 4.1%. It was also higher than the median estimate of 4.5%.
Most of this inflation was because of food and energy prices. Excluding the two, the bloc’s inflation rose from 2.0% in October to 2.6% in November. The harmonised inflation also rose to 2.6%. These numbers are significantly higher than the European Central Bank (ECB) target of 2.0%. Still, there is a likelihood that the bank will not abandon its monetary policy framework since it believes that the current inflation trend is transitory.
The EUR/USD also dropped after the latest testimony by Jerome Powell. In it, he warned that the Omicron variant brings several risks to the economy. It risks worsening the current supply chain situations and hurt job growth. Also, it could push inflation higher in the coming months. Therefore, he hinted that the bank will accelerate the pace of its quantitative easing tapering.
While it is too early, analysts believe that Omicron poses risks because it is spreading faster than other variants. Also, it seems evasive of the current vaccines. In a statement on Tuesday, Moderna’s CEO warned that it could take months for companies to develop vaccines to handle the variant.
Today, the EUR/USD will react to the latest German retail sales and European and American inflation data. The market will also watch the latest ADP jobs numbers.
EUR/USD Forecast
The EUR/USD erased most of the gains made in the past two days after the overall hawkish statement by Jerome Powell. The pair is trading a few points below the 23.6% Fibonacci retracement level. It has also moved slightly below the 25-day and 15-day moving averages. It also moved below the neckline of the inverted head and shoulders pattern. The MACD has moved below the neutral level.
Still, the pair will likely attempt to recover today as investors buy the dip. If this happens, it could move and retest this week’s high of 1.1385.
