Bearish view
- Sell the EUR/USD and set a take-profit at 1.1278.
- Add a stop-loss at 1.1420.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.1380 and a take-profit at 1.1450.
- Add a stop-loss at 1.1300.
The EUR/USD rose to an important resistance as Jerome Powell testified in the Senate. The pair rose to a high of 1.1360, ahead of the latest American consumer price index (CPI) data.
Powell commits to aggressive rate hikes
Jerome Powell testified on Tuesday as he tried to convince Senators about his achievements in his first term as the Fed Chair. He is expected to get support from most senators, therefore getting a second term as the chairman.
In his testimony, he mostly focused on the rising American inflation and what the bank will this year. The bank has already committed to ending its quantitative easing (QE) policies this year. It has also hinted that it will implement three rate hikes this year.
However, in the testimony, Powell was more brazzen. He said that the bank will embrace a more aggressive tone if the pace of price increases do not come down. This means that it could implement more than four hikes this year. The US dollar declined slightly during his testimony. The same is true with bond yields, with the 10-year and 30-year falling to 1.72% and 2.08%.
The EUR/USD pair will next react to the latest American consumer inflation data. Economists expect that the data will show that the headline CPI rose to 7% in 2021. The core CPI is also expected to rise to 5.4%, which will be the highest level in decades. These numbers will come a day after the OECD said that inflation in its member states rose to 5.8% in December.
Therefore, conditions are ripe for more tightening considering that the country’s unemployment rate has declined to a pandemic-era low of 3.9%. On the other hand, there are questions about when the European Central Bank (ECB) will start moving.
EUR/USD Forecast
The four-hour chart shows that the EUR/USD pair has been in a tight range recently. The pair rose to the key resistance level at 1.1360, where it has struggled moving above several times before. It also moved slightly above the 25-day moving average while the Stochastic oscillator has moved close to the overbought level. It is also slightly below the 38.6% Fibonacci retracement level.
Therefore, the pair will likely resume the bearish trend as bears target the lower side of the channel at 1.1278. This view will be invalidated if it moves above 1.1400.
