Bearish View
- Sell the EUR/USD pair and set a take-profit at 1.1050.
- Add a stop-loss at 1.1250.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 1.1175 and a take-profit at 1.1250.
- Add a stop-loss at 1.1100.
The EUR/USD is hovering near its lowest level since 3rd June 2020 as investors weighed the diverging performance of the Eurozone and the US economies. The pair is trading at 1.1150, which is about 3% below the highest level this year.
US and Eurozone Economies
Recent economic numbers shows that the American economy is bouncing back at a quicker rate than that in the Eurozone. For example, on Friday, data by the German statistics agency showed that the economy contracted in the fourth quarter. Other countries like France and Spain nade a spectacular recovery.
While the German economy contracted, the American economy recorded a strong growth in the fourth quarter. That was a sign that the Omicron variant’s impacts were not as severe as what analysts were expecting.
Meanwhile, the American labor market has been stronger than that in Europe. For example, the American unemployment rate has declined to 3.9%. In Europe, the unemployment rate stands at about 7%.
Therefore, the EUR/USD pair has declined as investors predict that the Federal Reserve will be more aggressive than the European Central Bank.
Analysts have mixed opinions of the number and sizes of Fed’s rate hikes. For example, analysts at Goldman Sachs expect that the Fed will make five rate hikes this year. Other analysts at other banks are predicting about 3 or four hikes.
Central bank officials are also unsure about what to expect. In a recent statement, Raphael Bostic warned that the rate hikes could be in batches of 50 basis points each. This is substantially higher than the overall estimates of a 25 basis point hikes.
On the other hand, analysts expect that the ECB will continue making its quantitative easing purchases and possibly not hike this year.
Later this week, the EUR/USD pair will react to the latest US jobs numbers and the Eurozone inflation numbers for January.
EUR/USD Forecast
The daily chart shows that the EUR/USD pair has been in a strong bearish trend lately. On the daily chart, we see that the pair managed to move below the lower side of the bearish flag pattern that is shown in black. It also declined below the 25-day and 50-day moving averages while the stochastis oscillator has moved to the oversold level.
Therefore, the pair will likely continue falling ahead of the latest US NFP data. The next key stop to watch will be at 1.1050.
