Bullish View
- Buy the EUR/USD pair and set a take-profit at 1.1230.
- Add a stop-loss at 1.0950.
- Timeline: 1-2 days.
Bearish View
- Set a sell-stop at 1.100 and a take-profit at 1.0900.
- Add a stop-loss at 1.1100.
The EUR/USD pair rebounded sharply on Wednesday and on Thursday morning as a risk-on sentiment spread in the market. It rose to a high of 1.1100, which was the highest level since last week. It has risen by more than 2.60% from its lowest level this week.
Risk-On Sentiment
The rebound of the EUR/USD coincided with the strong performance of American and European stocks and cryptocurrencies. It also happened in a period when the CBOE volatility index retreated by over 10% from its highest level this week.
The pair will react to several events on Thursday. First, European leaders will conduct a meeting in which they will deliberate the issue on Ukraine. They will also talk about a new round of stimulus to prevent the bloc’s economy from going to a recession.
Recession risks have been at elevated levels in the past few days because of the performance of the energy market. European gas has jumped to an all-time high while oil stands at the highest point in more than a decade.
At the same time, many companies are expressing worries about supply chains. For example, automobile firms will struggle to find parts because of the sanctions on Russia. Still, it is unclear the size or structure of the stimulus package that the leaders will offer.
The EUR/USD will also react to the outcome of the European Central Bank meeting. The bank is expected to leave its policy framework intact for now. It will also signal that it will continue with its quantitative easing policy in a bid to prevent recession risks. Before the attack on Ukraine, most analysts were expecting the bank to start hiking in the second or third quarter.
The US will also publish the latest inflation data. Analysts expect the data to show that inflation crossed the 8% mark in February. The situation will continue to worsen because of the rising energy and other commodity prices.
EUR/USD Forecast
The EUR/USD pair has been in a strong bullish trend in the past few days. Along the way, the pair has managed to move above the 23.6% Fibonacci retracement level. At the same time, it has crossed the 25-day and 50-day moving averages, signaling that bulls are gaining control. The RSI and MACD have also risen.
Therefore, while this rebound could be a dead cat bounce, there is a likelihood that the pair will keep rising as bulls target the 61.8% retracement level at 1.1230.
