Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0795.
- Add a stop-loss at 1.0875.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0875.
- Add a stop-loss at 1.0800.
The EUR/USD pair continued its strong recovery as the US dollar index and bond yields tumbled following the closely-watched statement by Jerome Powell. The pair, which bottomed at 1.0725 on Monday, has surged by more than 1% to 1.0835.
US NFP data ahead
The US dollar index tumbled to the important support at $104 after Jay Powell delivered a statement at Stanford University. Bond yields, which move inversely to prices, also retreated, with the 10-year moving to 4.35% and the 30-year falling to 4.51%.
In his statement, Powell reiterated that the Fed has more time to assess data before starting cutting interest rates. He believes that the bank can still deliver at least three cuts this year.
The Fed will meet on May 1st and most economists believe that it will not cut rates then. As such, it has April and May to digest the incoming data and decide whether a rate cut will be necessary in June.
There are signs that US inflation is still rising. For one, the average gasoline price has jumped to $3.58 and the trend will continue rising as the price of crude oil has surged. Brent is approaching $90 a barrel while the West Texas Intermediate (WTI) rose to $85.45.
It is against this backdrop that Raphael Bostic of Atlanta Fed noted that the Fed should deliver one cut this year. He expects that this cut will happen in the fourth quarter.
The next important data to watch will be the upcoming US nonfarm payrolls (NFP) data set for Friday. These numbers are expected to show that the country’s labor market continued to tighten in March.
In a report on Wednesday, ADP estimated that the private sector created 184k jobs in March, higher than the median estimate of 148k.
The EUR/USD pair also rose even after an encouraging European inflation data. According to Eurostat, the headline inflation dropped from 2.6% in February to 2.4% in March. Core inflation moved from 3.1% to 2.9%.
These numbers mean that the bloc’s inflation is nearing the ECB’s target of 2.0%, meaning that the bank will start cutting rates soon.
EUR/USD technical analysis
The EUR/USD pair has staged a strong recovery in the past few days. It has risen from this week’s low of 1.0725 to a high of 1.0830, its highest swing on March 27th. The pair has jumped above the 50-period moving average and the Woodie pivot point.
It has also entered the Ichimoku cloud indicator while the Relative Strength Index (RSI) is nearing the overbought level. The pair also flipped the crucial resistance point at 1.0795, its lowest swing on February 29th.
The pair will likely retreat and retest the important support at 1.0795 and then resume the bullish trend.
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