Bearish View
- Sell the EUR/USD pair and set a take-profit at 1.1250.
- Add a stop-loss at 1.1360.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 1.1320 and a take-profit at 1.1400.
- Add a stop-loss at 1.1250.
The EUR/USD pair retreated sharply in the overnight session after a speech by Christine Lagarde in which she reiterated about ECB policy. The pair is trading at 1.1306, which is the lowest it has been since February 3rd. It has fallen by more than 1.60% from its highest level this week.
Christine Lagarde on Monetary Policy
In a statement on Monday, Lagarde, the ECB chair, reiterated that the bank will embrace a gradual pace of tightening even as inflation keeps rising. Analysts expect that the bank will deliver about 2 rate hikes this year. These rate hikes will be fewer than those that the Fed and the Bank of England will deliver this year.
Recent data showed that the bloc’s economy is doing well, with inflation rising and the unemployment rate falling. For example, data published last week revealed that the headline consumer price index jumped to the highest level in decades.
Inflation will likely keep rising considering that the cost of energy in the region continues to rise. The situation will worsen if Western countries add sanctions on Russia, which is the biggest seller of oil and gas to the Eurozone.
Later today, Olaf Scholz, the German chancellor, will hold negotiations with Putin on the way forward. He is expected to ask Putin to engage with diplomacy and then warn him about the impact of sanctions on his economy.
Meanwhile, the Eurozone unemployment rate has crashed to the lowest level on record as the recovery accelerates.
The next key catalyst for the EUR/USD pair will be the upcoming Eurozone GDP numbers. Economists expect the data to show that the bloc’s economy expanded by 4.6% in the fourth quarter while its trade dynamics improved. The main laggard during the quarter was Germany.
EUR/USD Forecast
The four-hour chart shows that the EUR/USD pair formed a double-top pattern this month. Recently, it managed to move below the pattern’s chin at 1.1396 as investors rushed to the safety of the US dollar. It has moved below the 25-day and 50-day moving averages while the MACD has moved below the neutral level.
The pair also moved below the key support level at 1.1331, which was the highest level on February 2. Therefore, the path of the least resistance for the pair is to the downside. If this happens, the next key support to watch is 1.1250.
