Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.2000.
- Add a stop-loss at 1.1700.
- Timeline:1-2 days.
Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1700.
- Add a stop-loss at 1.2000.
The EUR/USD exchange rate pulled back sharply as investors reacted to Donald Trump's decision to nominate Kevin Warsh to become the next Federal Reserve Chairman. It retreated to a low of 1.1850, down from last month's high of 1.2080.
Kevin Warsh Seen as a Hawkish Nominee
The EUR/USD exchange rate pulled back sharply after Donald Trump made his Federal Reserve Chairman pick official on Friday. In a post, he said that he would nominate Kevin Warsh, a former Fed official to become the next Federal Reserve Chair when Jerome Powell’s term ends in May this year.
Trump has widely crashed with Powell on interest rate cuts. He has campaigned aggressively for the bank to cut rates to 1% despite the fact that he notes that the economy was doing well.
While Warsh has supported interest rate cuts recently, analysts believe that he will maintain a hawkish tone when he becomes Chairman. In the past, he has criticized the bank for implementing quantitative easing policies and cutting interest rates early.
Therefore, if he moves to cut rates early, analysts will think that he is a Trump puppet, while if he maintains a hawkish tone he will attract the ire of the president.
The next key catalyst for the EUR/USD exchange rate will be the upcoming US manufacturing PMI data, which will come out later today. Economists expect the data to show that the PMI rose to 51.9 in January from the previous 51.8.
It will also react to a statement by Raphael Bostic, a top Federal Reserve official. Additionally, the US will publish several important macro data later this week, including the January jobs numbers.
The EUR/USD pair will also react to the upcoming European consumer inflation report, which is expected to show that prices dropped to 1.7% in January. Analysts expect the European Central Bank (ECB) will leave rates unchanged this year and then hike in 2026.
EUR/USD Technical Analysis
The daily timeframe chart shows that the EUR/USD exchange rate has pulled back in the past few days, moving from a high of 1.2080 last week to the current 1.1850.
On the positive side, the pair has remained above the Supertrend indicator. It has remained above the 50-day and 100-day Exponential Moving Averages (EMA).
Therefore, the pair will likely bounce back later this week. If this happens, the next key level to watch will be the psychological level at 1.2000.
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