Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0400.
- Add a stop-loss at 1.0650.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0600 and a take-profit at 1.0700.
- Add a stop-loss at 1.0500.
The EUR/USD made a bearish breakout on the first official trading day of the year. It dropped to a low of 1.0523, which was the lowest point since December 12. It has plunged by more than 1.55% from its highest point in December.
US dollar index rallies
The EUR/USD price dropped as the US dollar index surged on Tuesday. The index, which tracks the performance of the greenback against a basket of currencies, rose by more than 1.13% on Tuesday. This rally coincided with the strong performance of the VIX index, which rose by over 8.7% to $23.5.
Further, the dollar rebound happened as American stocks tumbled while bond yields declined. The Dow Jones, Nasdaq 100, and S&P 500 indices fell by over 1.5% after Tesla announced weak deliveries for December and 2022 in general. The firm delivered 1.31 million cars in 2022, lower than the estimated 1.5 million.
Meanwhile, bond yields pulled back, with those tied to the 10-year and 30-year falling to 3.78% and 3.87%, respectively. This performance is mostly a signal that investors are still worried about a recession in 2023 as companies slash spending. Large American companies like Goldman Sachs and Meta Platforms have warned about job cuts this year.
The EUR/USD declined even after some encouraging data from Germany. Data by the statistics agency showed that the country’s inflation dropped to 9.6% in December from 11.3% in the previous month. This decline was also lower than the seven-decade peak of 11.6% that it hit in October. This decline happened as natural gas prices dropped.
The next key mover for the EUR/USD price will be the upcoming FOMC minutes. These minutes will provide more color about what to expect in the coming months.
EUR/USD forecast
The EUR/USD price has been in a tight range in the past few weeks. This consolidation ended on Tuesday when the pair made a strong bearish breakout. As it dropped, it moved below the ascending trendline shown in black. It also dropped below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved below the oversold level.
The pair has also formed a bearish flag pattern. Therefore, it will likely continue falling as sellers target the key support at 1.0450. A move above the resistance point at 1.0600 will invalidate the bearish view.
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