Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0750.
- Add a stop-loss at 1.0595.
- Timeline: 1-2 days.
Bearish view
- Sell the pair and set a take-profit at 1.0555.
- Add a stop-loss at 1.0740.
The EUR/USD price moved sideways in the overnight session as investors reacted to the latest interest rate decision by the Fed. It was trading at 1.0651, where it has been in the past few days. This price is a few points below this week’s high of 1.0690.
ECB decision next
The EUR/USD price declined slightly after the Fed delivered a more hawkish tone than expected. In a statement, the Fed hiked interest rates by 50 basis points, bringing the year-to-date increase to 450 basis points. It had hiked by 75 basis points in the past four meetings straight. This increase brought the rate to between 4.25% and 4.50%, the highest point in 15 years.
The Fed statement was more hawkish than expected. Most Fed officials hinted that the bank will raise rates between 5% and 5.5%. This implies that the Fed will hike by another 0.75% in the next few meetings since inflation remains elevated. The Fed is attempting to create a soft landing where it brings inflation down without causing a severe recession.
Early data suggests that the Fed is succeeding. Data published on Tuesday shows that inflation dropped to 7.1% in November. Bond yields and mortgage rates have also retreated in the past few weeks.
The next key catalyst for the EUR/USD price will be the upcoming interest rate decision by the European Central Bank (ECB). Economists expect that the ECB will also hike by 0.5%, meaning that the spread between the two central banks will be wide for a while. The European Union has emerged from the pandemic at a slower pace than the US.
The other minor catalysts for the pair will be the upcoming US retail sales and Philadelphia Fed manufacturing data. Retail sales are expected to have eased by 0.1% in November.
EUR/USD forecast
The EUR/USD remained in a consolidation phase after the Fed decision. It is hovering near its highest level since June 9. The pair has formed an ascending channel shown in black and moved above the 25-day and 50-day moving averages. This channel seems like it is converging in a rising wedge pattern. The Awesome Oscillator has moved above the neutral point.
Therefore, the pair will likely continue rising ahead of the upcoming ECB decision as investors discount the hawkish Fed statement. This could see it rise to 1.0750. A drop to the lower side of the channel at 1.0560 cannot be ruled out.
Ready to trade our free daily Forex trading signals? We’ve shortlisted the best Forex brokers in the industry for you.