Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0690.
- Add a stop-loss at 1.0400.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.0480 and a take-profit at 1.0400.
- Add a stop-loss at 1.0550.
The EUR/USD pair made a strong bullish breakout and reached its highest swing since January 27 even after the strong inflation data. It rose to a high of 1.0500, up from this month’s low of 1.0173. So, what next for the pair as the US dollar index sell-off continues?
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US dollar index crashes
The EUR/USD exchange rate rose after the US published strong inflation data last week. US inflation rose to 3% in January, continuing a trend that started a few months ago. The ongoing rally indicates that inflation is moving further away from the 2% target.
These numbers came as Jerome Powell and Beth Hammack, a Fed official, hinted that the bank would maintain a hawkish tone until inflation falls towards the 2% target. The challenge, however, is that Donald Trump’s tariffs will lead to higher inflation.
The EUR/USD pair also rose after Eurostat published strong GDP numbers. Its data showed that the European economy expanded by 0.1% in the fourth quarter, translating to a YoY gain of 0.9%.
The pair will likely react to two key events this week. First, Donald Trump may finally reveal his tariffs for the European Union, a region that he accuses of treating the US unfairly. Tariffs between the two regions will have a major implication on the economy.
Second, the Federal Reserve will publish minutes of the last meeting. These minutes will provide more information about the last meeting and what to expect later this year. Economists expect the Fed to hold steady for a while, and then slash them later this year.
EUR/USD technical analysis
The daily chart shows that the EUR/USD exchange rate rose for five straight days as the US dollar index slumped. It has moved above the upper side of the diamond pattern, a popular bullish sign in the market.
The pair moved above the 23.6% Fibonacci Retracement level and the 50-day Exponential Moving Average (EMA). Further, the Relative Strength Index (RSI) and is inside the Ichimoku cloud indicator.
Therefore, the pair will likely continue rising as bulls target the 50% Fibonacci Retracement level at 1.0692, up by almost 2% from the current level.
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