Bearish View
- Set a sell-stop at 1.0945 and a take-profit at 1.0850.
- Add a stop-loss at 1.1050.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 1.1030 and a take-profit at 1.1100.
- Add a stop-loss at 1.0890.
The EUR/USD pair tilted higher on Tuesday morning as the market sentiment continued being mixed ahead of the FOMC decision and the crisis in Ukraine escalated. It is trading at 1.0983, which is about 1.65% above the lowest level last week.
Fed is the Only Game in Town
The EUR/USD pair declined sharply last week after the hawkish decision by the European Central Bank (ECB). While the bank left interest rates unchanged, it decided to start slowing its asset purchases, signaling that lift-off will come later this year.
The biggest focus this week will be the Federal Reserve, which will start its meeting later today. The FOMC committee will deliberate the current state of the economy and deliver its rate decison on Wednesday.
The decision comes at a time when the yield of the 10-year has risen to 2.12% while equities have moved to a bear territory. At the same time, US inflation has continued to surge. Crude oil and other commodities like wheat and copper have all risen.
Data published last week showed that the American inflation surged to a four-decade high of 7.9% while core CPI jumped to 6.4%. Later on Tuesday, the US will publish the latest producer price index (PPI) data. Like the CPI, analysts expect that the PPI rose close to 10% in February.
Many companies have expressed their concerns about the rising cost. For example, in a statement, Elon Musk lamented that Tesla and SpaceX were seeing significant costs. As such, he hinted that Tesla will soon increase prices. All these factors will push the Fed to embrace a hawkish tone.
The EUR/USD pair will also react mildly to the latest European industrial production data. Analysts expect the data to show that production declined by 0.5% in January.
EUR/USD Forecast
The four-hour chart shows that the EUR/USD pair crashed below the key support level at 1.1120 last week after the ECB decision. It then did a break and retest pattern, which is a sign of a continuation. The pair remains strongly below the 25-day and 50-day moving averages, signaling that bears are still in control.
Another thing is that the pair is slightly below the middle line of the Andrews Pitchfork tool and is slightly above the 23.6% retracement level. Therefore, there is a likelihood that the pair will continue dropping this week.
