Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0575.
- Add a stop-loss at 1.0680.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0650 and a take-profit at 1.0750.
- Add a stop-loss at 1.0550.
The EUR/USD price pulled back ahead of a relatively busy market week in the financial market. It rose to a high of 1.0615, a few points above last month’s low of 1.0533. Focus shifts to the upcoming statements by ECB and Fed officials and US non-farm payrolls (NFP) data.
Federal Reserve in focus
The EUR/USD pair drifted upwards as concerns about the Federal Reserve continued. These concerns were reflected on the bond market. Data shows that the 10-year is hovering at 4% while the 30-year has moved to the 3.8% level. The 10-2 yield spread has crashed to the lowest level in decades while the 30-year mortgage rate has moved to 7%.
Therefore, the actions of the Federal Reserve will determine how the pair will trade in the coming days. Several Fed officials have reinforced the view that the Fed should continue hiking interest rates in the coming days. On Friday, San Francisco Fed chair, Mary Daly, said that she will support more tightening in order to fight the elevated inflation. She said:
“In order to put this episode of high inflation behind us, further policy tightening, maintained for a longer time, will likely be necessary.”
The Fed has been in a strong tightening phase in the past few months. It has moved interest rates to 4.5% and hinted that it will continue doing so. Mary Daly is not the only Fed official to warn of higher rates. Well-known hawks like Roletta Mester and James Bullard have all supported measures to hike rates.
Therefore, focus will be on a two-day testimony by Jerome Powell, the Fed Chair. In it, he will likely provide more details about what to expect in the coming months. ECB’s Christine Lagarde will also deliver a statement. The most important data will be the upcoming non-farm payrolls (NFP) data schedule for Friday.
EUR/USD technical analysis
The EUR/USD pair drifted upwards on Monday morning. As it rose, the pair moved slightly above the important resistance point at 1.0612, the lowest point on February 17. It has also moved above the upper side of the descending channel pattern and the 25-day and 50-day moving averages. The Relative Strength Index (RSI) has moved above the neutral point at 50 while the MACD is at the neutral point.
I suspect that the pair will retreat towards Jerome Powell’s testimony on Tuesday. If this happens, the pair will retest the support at 1.0575.
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