Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1500.
- Add a stop-loss at 1.1700.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1700.
- Add a stop-loss at 1.1500.
The EUR/USD pair continued its downward trend on Monday morning, reaching its lowest level since December 2nd as geopolitical risks emerged during the weekend and as traders waited for key macro events. If dropped to 1.1600, much lower than the year-to-date high of 1.1805.
Geopolitical Risks Return
The EUR/USD pair retreated and reached its lowest level in over a month after Donald Trump threatened several key European countries with tariffs because of the Greenland issue. He will apply an additional 10% tariff initially and boost it to 25% later this year until he succeeds in purchasing Greenland.
The EUR/USD pair will react to the upcoming European inflation data, which will come out on Monday. Economists expect the report to show that the bloc’s inflation retreated from 2.1% in November to 2% in December, while the core CPI eased to 2.3%.
Therefore, with inflation being at the European Central Bank (ECB) target, the bank will not be in a hurry to cut interest rates this year. Some analysts expect that the bank may opt to hike rates in the fourth quarter.
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The next important catalyst for the pair will be a speech by Christine Lagarde, which will happen on Wednesday. She will provide more information on the bloc’s inflation, economic growth, and what to expect in the coming meetings
The EUR/USD pair will also react to the upcoming decision by the Supreme Court on the legality of Donald Trump's tariffs. While the court will likely rule against these tariffs, Trump will have more options to impose similar levies on imported goods.
The US will also publish the latest personal consumption expenditure (PCE) inflation data on Thursday. Economists expect the data to show that the headline PCE data moved from 2.8% to 2.7% in November. This is important data because it is the Fed's favorite inflation gauge.
EUR/USD Technical Analysis
The EUR/USD pair has been in a strong downward trend in the past two weeks and is now trading at its lowest level since December 2nd. It has dropped below the 50-day Exponential Moving Average (EMA)
The pair has formed a head-and-shoulders pattern, a common bearish reversal sign in technical analysis. It has also moved below the Supertrend indicator, a sign that bears remain in control.
Therefore, the pair will likely continue falling as sellers target the next key support level at 1.1500.
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