Bearish view
Sell the EUR/USD pair and set a take-profit at 1.2000.
Add a stop-loss at 1.1600.
Timeline: 1-2 days.
Bullish view
Buy the EUR/USD pair and set a take-profit at 1.1600.
Add a stop-loss at 1.2000.
The EUR/USD exchange rate pulled back on Thursday morning as investors reacted to the Federal Reserve interest rate decision and the ongoing energy price rally. It dropped to 1.1465, down substantially from the year-to-date high of 1.2085.
Federal Reserve Interest Rate Decision and Oil Prices
The EUR/USD pair has slipped in the past few weeks as investors have moved to the safety of the US dollar as Iran intensified. One of the main impacts of this war is that it would lead to higher inflation and make it hard for the Federal Reserve to cut interest rates.
These fears were confirmed on Wednesday when the Federal Reserve delivered its interest rate decision. As was widely expected, the bank decided to leave interest rates unchanged between 3.50% and 3.75%.
In his press conference, Powell reiterated that the bank will only cut interest rates when it sees evidence that inflation was moving towards the 2% target.
He maintained that the bank was seeing signs that inflation was stickier than expected, even before the Iran war started. For example, a report released on Wednesday showed that the Producer Price Index (PPI) continued rising in February.
Therefore, with energy prices soaring, analysts believe that the Federal Reserve will maintain interest rates steady this year. Also, there are signs that the bank’s next move will be an interest rate hike.
The pair also retreated as the Iran war continued, with Israel and the United States bombing the country’s gas fields. In its response, Iran launched drone attacks in key facilities in the region, pushing crude oil prices to $109.
The next important EUR/USD news will be the upcoming European Central Bank (ECB) interest rate decision. Economists see the bank leaving rates unchanged in this meeting. However, with inflation rising, analysts are predicting that the bank may deliver two rate cuts this year.
EUR/USD Technical Analysis
The daily chart shows that the EUR/USD pair has slipped in the past few weeks, falling from a high of 1.2085 in January to the current 1.1465.
It has dropped below the 23.6% Fibonacci Retracement level and the 50-day Exponential Moving Average (EMA). Dropping below these levels is a sign that bears have prevailed.
The Percentage Price Oscillator (PPO) and the Relative Strength Index (RSI) have continued falling in the past few months. Therefore, there is a possibility that the pair will likely continue falling, potentially to the psychological level at 1.2000, which is slightly above the 50% retracement level.