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Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0735.
- Add a stop-loss at 1.0875.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0830 and a take-profit at 1.0900.
- Add a stop-loss at 1.0735.
The EUR/USD price has retreated in the past four straight days as the recent euro momentum faded. The pair dropped from November’s high of 1.1015 to a low of 1.0805 as investors reflected on the recent statement by Jerome Powell.
Jerome Powell statement and EU inflation
The EUR/USD pair has been in a strong downtrend after Europe published encouraging consumer inflation data. According to Eurostat, the euro area consumer inflation dropped to 2.4% in November, the lowest level in months.
These numbers mean that the European Central Bank (ECB) is winning its battle against inflation as energy prices in the bloc have tumbled. Therefore, the ECB will likely maintain rates steady at their current level and then start slashing them in 2024.
Besides, there are signs that the European economy is not doing well. The most recent data showed that the bloc is slowing. A report by the Eurostat revealed that the bloc contracted by 0.1% in the third quarter.
On Monday, data by the German statistics agency showed that exports dropped by 0.2% in October while imports fell by 1.2%. These dynamics pushed the country’s trade surplus to over 17.8 billion euros.
The EUR/USD pair also retreated as investors reflected on the hawkish statement by Jerome Powell, the head of the Federal Reserve. In a statement on Friday, he warned that inflation was still significantly above its 2% target.
He noted that the Fed will need more data to show that inflation is indeed moving to the target of 2.0% to cut rates. Still, despite this pushback, the market believes that the Fed will still cut rates in the first half of the year.
The key economic numbers to watch on Tuesday will be the latest services and composite PMI numbers from Europe and the US. The Bureau of Labor Statistics will publish the latest JOLTs job openings data.
EUR/USD technical analysis
The EUR/USD price retreated and lost the important resistance point at 1.0823, the lowest swing on November 17th. On the 4H chart, the 50-period and 25-period Exponential Moving Averages (EMA) have made a bearish crossover. It is also nearing the 38.2% Fibonacci Retracement level while the Money Flow Index (MFI) has dropped to the oversold level.
Therefore, the path of the least resistance for the pair is bearish, with the next key reference level being the 50% retracement point at 1.0735. The stop-loss of this trade will be at the 23.6% retracement level at 1.0880.
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