Bullish View
- Buy the EUR/USD pair and set a take-profit at 1.1800.
- Add a stop-loss at 1.1600.
- Timeline: 1-2 days.
Bearish View
- Sell the EUR/USD pair and set a take-profit at 1.1600.
- Add a stop-loss at 1.1800.
The EUR/USD exchange rate pulled back after the European Central Bank (ECB) delivered its final interest rate decision of the year. It was trading at 1.1710 on Monday morning, down slightly below this month's high of 1.1810.
ECB Interest Rate Decision and Federal Reserve Outlook
The EUR/USD exchange rate retreated after the ECB delivered its interest rate decision and boosted its forward guidance on the economy and inflation.
The bank left interest rates unchanged at 2% and predicted that inflation will return to 2% in 2028.
Most notably, the bank believes that the economy will be robust as the impact of Donald Trump's tariffs on the economy remains muted. Also, the economy is reacting to the ongoing government spending in the region.
A top country like Germany has boosted its spending, a move that will help it to do well. At the same time, the French economy has been robust despite the recent pension issues.
Analysts expect that the bank will hold its interest rates steady in the coming months. However, there are differences on the next phase, with some analysts predicting that the bank will cut in the first quarter. On the other hand, some analysts predict that the bank will hike rates in the fourth quarter.
Meanwhile, the EUR/USD pair reacted to the recent US macro data. In a statement, the Bureau of Labor Statistics (BLS) said that the labor market started to improve in November, with the economy added over 64,000 jobs. However, the unemployment rate rose to 4.6%, partly because of the workers who left the labor market voluntarily.
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US inflation is also moving downwards, meaning that the Federal Reserve will continue cutting interest rates. There will be some important macro data this week like the US GDP and consumer confidence but its impact on the pair will be muted because of the Christmas holiday.
EUR/USD Technical Analysis
The EUR/USD pair has pulled back in the past few days as the recent rally lost momentum. It was trading at 1.1710, down from this month’s high of 1.1800.
The pair remains slightly above the 50-day and 100-day Exponential Moving Averages (EMA). It is also forming a small bullish flag pattern, a popular continuation sign.
The Relative Strength Index (RSI) and the MACD have continued moving upwards. Therefore, the most likely scenario is where it continues rising, with the next key target being at 1.1800.
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