Bullish view
- Buy the EUR/USD and set a take-profit at 1.1400.
- Add a stop-loss at 1.1250.
- Timeline: 1-2 days.
Bearish view
- Set a sel-stop at 1.1300 and a take-profit at 1.1200.
- Add a stop-loss at 1.1400.
The EUR/USD pair bounced back slightly in the overnight session after it crashed to a low of 1.1285 on Monday. It is trading at 1.1326, which is still a few points below its post-NFP data high of 1.1365.
Volatility rises
The overnight session was characterized by rising volatility in the United States. The CBOE Volatility Index rose by over 17% on Monday as investors remained concerned about the Federal Reserve and its potential actions this year.
As a result, the Nasdaq 100 index declined by over 300 points and crashed to a bear territory. Other indices like the Dow Jones, S&P 500 and the Russel 2000 also declined by more than 1%.
The rising volatility is mostly because of the Federal Reserve. Judging by the past utterances by Fed officials, analysts have started to price in a more hawkish Fed in the next few months.
Such a move will be supported by econonomic data. For example, data published on Friday showed that the unemployment rate declined to 3.9% in December. That was the lowest it has been since the pandemic started.
Inflation has also surged. The US will publish the latest inflation numbers tomorrow and analysts expect that the situation worsened in December. They expect that the headline CPI jumped from 6.8% in November to 7.0% in December. Also, the core consumer inflation is expected to have risen to 5.4%.
Therefore, the EUR/USD pair will react to the upcoming speeches by key Fed officials like Loretta Mester and Esther George. Most importantly, the pair will react to a testimony by Jerome Powell, the Fed chair.
The EUR/USD pair also reacted to the latest employment numbers from the Eurozone. According to Eurostat, the bloc’s unemployment rate declined to 7.2% in November.
EUR/USD Forecast
The EUR/USD pair has been in a tight range in the past few weeks. On Friday, the pair rose to 1.1365 after the mixed jobs numbers from the US. On Monday, it erased some of those gains and moved to a low of 1.1285. It is between the horizontal channel shown in black. Also, the pair is trading at the same level as the 25-day and 50-day moving averages while the MACD has moved slightly above the neutral level.
Therefore, the outlook of the pair is currently neutral, meaning that a breakout will happen in either side. The key support and resistance levels to watch will be at 1.1280 and 1.1360, respectively.
