Bearish view
- Set a sell-stop at 1.0900 and a take-profit at 1.0850.
- Add a stop-loss at 1.0965.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0980.
- Add a stop-loss at 1.0885.
The EUR/USD exchange rate continued its downtrend after the US published a red-hot inflation report. The pair retreated to 1.0900 as traders assessed the implication of this data on the Federal Reserve.
US red-hot inflation report
Consumer prices in the US continued soaring in February, putting more pressure on the Federal Reserve.
In a report, the Bureau of Labor Statistics revealed that the headline Consumer Price Index (CPI) remained above the Fed’s target of 2.0% in February. The CPI rose by 3.2%, higher than the expected 3.1%.
The closely watched core CPI also rose by 3.8% YoY in February, higher than the expected 3.7%. It was the second straight month that the figure has moved above estimates.
Another data, known as the supercore CPI, which excludes shelter, food, and energy prices retreated slightly in February.
These numbers came a few days after Jerome Powell hinted that the Fed was convinced that inflation was falling and that the bank was hopeful that it would start cutting rates later this year.
Therefore, there are signs that inflation, especially the core figure, will take a longer period before moving to the Fed’s target of 2.0%. It has remained between 4% and 3.8% in the past few months.
In contrast, economic data from Europe show that inflation is slowly nearing the ECB target of 2.0%. Data released on Tuesday showed that the German inflation rose by 2.5% in February. A recent report showed that Europe’s inflation rose by 2.8% in February.
Therefore, there is a likelihood that the European Central Bank will start to cut interest rates sooner than the Fed. Most analysts expect it to slash as soon as in its meeting in May since the bloc’s economy is ailing.
In the US, some analysts have reduced their rate cut expectations to 2 since inflation remains much higher than the 2% target.
EUR/USD technical analysis
The EUR/USD pair has pulled back sharply in the past few days. It has slipped from last Friday’s high of 1.0980 to a low of 1.0900. On the four-hour chart, the pair has formed a break-and-retest pattern by moving to the support at 1.0916. This was an important point since it was the neckline of the inverse head and shoulders pattern.
The pair has moved slightly above the 50-period moving average. Further, the Relative Strength Index (RSI) has dropped to the neutral point of 50. Therefore, the pair may continue falling on Wednesday and then resume the bullish trend. The key support and resistance levels to watch will be at 1.0850 and 1.0980.
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