EUR/USD Forex Signal: Stellar US Data Point to Higher Fed Hikes

The EUR/USD price declined after the relatively weak retail sales data. 

Bullish view

  • Buy the EUR/USD pair and set a take-profit at 1.0600.
  • Add a stop-loss at 1.0400.
  • Timeline: 1-2 days.

Bearish view

  • Set a sell-stop at 1.0450 and a take-profit at 1.0350.
  • Add a stop-loss at 1.0550.

The EUR/USD price retreated as concerns about the pace of Fed’s rate hikes continued. It pulled back to 1.0497, which was much lower than this month’s high of 1.0600. It remains substantially higher than November’s low of 0.9730.

Fed to consider higher rate hikes

The EUR/USD price declined on Monday and Tuesday morning as investors reflected on a series of positive economic data from the United States. On Friday, data by the Bureau of Labor Statistics (BLS) showed that the economy added over 282k jobs in November while the unemployment rate remained intact at 3.7%.

The most important reading was on wages, which rose by 5.2% in November. Another important data published on Monday revealed that factory orders rose by 1.0% in October while the ISM non-manufacturing PMI rose from 54.4 in October to 56.5 in November. Economists were expecting the PMI to come in at 53.3.

Therefore, analysts expect that the bank will consider hiking rates above the psychological level of 5.0% in 2023. Most of them believe that the Fed will hike by 0.50% in December after raising by 0.75% in the past four meetings. A 0.50% rate hike will bring the benchmark rate hike to between 4.25% and 4.50%, the highest point since 2007.

The EUR/USD price declined after the relatively weak retail sales data. According to Eurostat, the bloc’s retail sales dropped from 0.8% in September to -1.8% in October. It dropped by 2.7% on a YoY basis.

Additional data from Europe showed that the services PMI dropped from 48.6 to 48.2 in November. Therefore, these numbers show that the European economy was doing worse than expected. In a statement, ECB’s Christine Lagarde warned that the bank was not done hiking interest rates even as the economy contracts.

EUR/USD forecast

The 4H chart shows that the EUR/USD price has pulled back in the past few hours. As it dropped, the pair moved below the important support level at 1.0497, which was the highest point on November 28.

It remains above the 50-day moving average while the Stochastic Oscillator has moved below the overbought level. The Relative Strength Index (RSI) has also tilted downwards. Therefore, the pair will likely resume the bullish trend as buyers target last Friday’s high of 1.0593.

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Crispus Nyaga
Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.

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