Bullish View
- Buy the EUR/USD pair and set a take-profit at 1.1525.
- Add a stop-loss at 1.1380.
- Timeline: 1-2 days.
Bearish View
- Set a sell-stop at 1.1420 and a take-profit at 1.1350.
- Add a stop-loss at 1.1450.
The EUR/USD pair tilted higher on Thursday morning as focus shifted to the upcoming US consumer price index (CPI) data. The pair is trading at 1.1440, which is about 40 basis points above the lowest level on Tuesday.
US Consumer Inflation Data
The main catalyst for the EUR/USD pair will be the upcoming inflation figures that will come out on Thursday.
Economists polled by Reuters expect the data will show that the headline CPI slipped from 0.6% in December to 0.5% in January. On a year-on-year basis, however, they expect that the CPI rose from 7.0% to 7.3%. If they are accurate, that jump will be the biggest one in more than 40 years.
Excluding the volatile food and energy prices, analysts expect that inflation increased from 5.5% to 5.9%. Still, analysts believe that the real inflation is higher than what the official number is saying. For example, the prices of individual items that Americans buy often like cars, meat, and paint have risen by double-digits.
While the supply chain challenges are easing, the price of crude oil is rising. That means that the overall prices will keep rising in the coming months especially if the geopolitical issues between Russia and western countries escalate.
If the numbers are strong, it will give the Fed more impetus to continue tightening in its March meeting. Besides, recent data showed that the country’s labor market continued to tighten. The economy added over 467k jobs in January after adding another 550k in the previous month. The unemployment rate rose slightly to 4.0%.
The other catalyst that will have a mild impact on the EUR/USD pair will be the Riksbank interest rate decision. The bank is expected to leave interest rates unchanged and hint about hikes later this year.
EUR/USD Forecast
The EUR/USD pair jumped to a multi-week high of 1.1482 last week after the ECB decision. This week, the pair retreated slightly as investors assess the impacts of a hawkish Fed and ECB decisions. It has formed a bullish flag pattern and moved slightly above the 25-day and 50-day moving averages. The Relative Strength Index (RSI) has moved slightly below the overbought level.
Therefore, because of the bullish flag and the cup and handle pattern, there is a likelihood that the pair will have a bullish breakout to above 1.1500.
