EUR/USD Forex Signal: Patterns Point to Bearish Breakout

There is a likelihood that the pair will have a bearish breakout, with the next support at 1.1250.

Bearish View

  • Sell the EUR/USD and set a take-profit at 1.1250.
  • Add a stop-loss at 1.1400.
  • Timeline: 1-3 days.

Bullish View

  • Set a take-profit at 1.1355 and a take-profit at 1.1400.
  • Add a stop-loss at 1.1300.

The EUR/USD pair is in a consolidation mode as investors assess the overall divergence between the Federal Reserve and the European Central Bank (ECB). The pair is trading at 1.1345, which is about 1.255 below the highest level last week.

Fed and ECB Divergence

A key theme in the market recently is about the divergence between the ECB and the Fed. The Fed has already made it clear that it will start hiking interest rates this year. Officials have hinted that the bank will implement three rate hikes this year. But they have also not ruled out implementing more rates than that in their bid to curb the rising inflation.

On the other hand, the ECB has hinted that it will maintain its policy for a while. In a statement last week, Christine Lagarde said that the bank was still data-dependent and was not committing to do anything. That statement came shortly after data from the country showed that the headline consumer price index (CPI) jumped to a record high of 5.0% in December.

The main catalyst for the EUR/USD pair today will be the latest flash manufacturing and services PMI data from the EU and the US. Analysts expect that the two sectors held steady in January even as the omicron variant caused havoc in the two sides.

For the Eurozone, analysts expect the data to show that the manufacturing PMI rose to 57.5 in January while the services PMI rose to 52.2. On the other hand, for the United States, analysts expect the data to show that the manufacturing and services PMI rose to 56.7 and 55.0, respectively. Still, these numbers will likely not lead to substantial volatility on the pair.

EUR/USD Forecast

The four-hour chart shows that the EUR/USD pair declined sharply last week as a risk-off sentiment remained. The pair is trading at 1.1345, which is 1.25% below the highest level this month. It crossed the key level at 1.1350, where it had struggled moving above in December.

The pair is also slightly above the rising trend line shown in blue. A closer look shows that the pair has formed a head and shoulders pattern. Also, on the daily chart, the pair has formed a bearish pennant pattern. Therefore, there is a likelihood that the pair will have a bearish breakout, with the next support at 1.1250.

EUR/USD

Crispus Nyaga
Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.