Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0900.
- Add a stop-loss at 1.100.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0965 and a take-profit at 1.1035.
- Add a stop-loss at 1.0900.
The EUR/USD exchange rate moved sideways on Tuesday as geopolitical risks remained and as traders reflected on a hawkish statement from an ECB official. The pair was trading at the psychologically important level at 1.0950 ahead of the upcoming Italian and German economic numbers.
Hawkish ECB official statement
The EUR/USD pair remained in a tight range after Robert Holzman, an influential ECB member warned that rates might not come this year after all. He cited the fact that there are significant geopolitical issues, especially in the Middle East, that could lead to higher inflation.
Already, shipping costs have surged, with the World Container Index soaring to over $3,000 from below $1,400 a month ago. The price of West Texas Intermediate (WTI) and Brent has remained steady above $70. These factors could lead to higher inflation in the region.
The challenge for the European Central Bank (ECB) is that many countries in the bloc are not doing well. Germany, the biggest economy in the bloc, contracted by 0.3% last year, making it the worst-performing major country in the world. This happened as retail sales and industrial production contracted. As a result, continued tightening could have a negative impact on the bloc.
The next important EUR/USD news will come from Germany and Italy, which will publish the final December inflation numbers. Economists expect the data to show that the headline inflation rose by 3.7% in December after rising by 3.2% in the previous month. Data from Italy is expected to show that the headline CPI rose by just 0.6% in December.
These numbers will come a few days after the US published the latest Consumer inflation data. The report confirmed that inflation remains much higher than the Fed’s target of 2.0% as housing costs rose. The takeaway is that the Fed and the ECB will likely maintain higher rates for longer.
EUR/USD technical analysis
The EUR/USD pair has been flat in the past few days. This consolidation after the pair plunged hard from the December high of 1.1140. It has moved slightly below the 50-period moving average and formed a bearish flag pattern, a popular sign of a continuation. It has also remained slightly below the key resistance point at 1.1000, the highest point on December 14th.
Therefore, the outlook for the pair is bearish, with the next reference point to watch being the psychological point at 1.0900.
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