Bullish View
- Buy the EUR/USD pair and set a take-profit at 1.0400.
- Add a stop-loss at 1.0155.
- Timeline: 1-2 days.
Bearish View
- Sell the EUR/USD pair and set a take-profit at 1.0155.
- Add a stop-loss at 1.0300.
The EUR/USD exchange rate was unchanged on Monday morning ahead of a data-lite week and key macro events like Donald Trump swearing in and the World Economic Forum event in Davos, Switzerland. The pair was trading at 1.0270, a few pips above this month’s low of 1.0178.
The pair has retreated in the past few days as the market reflected on key economic data. The first notable one was the US nonfarm payroll (NFP) numbers, which showed that the economy added over 256k jobs as the unemployment rate fell to 4.1%.
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Another report released last week showed that the country’s inflation remained above the 2% target in December. The headline Consumer Price Index (CPI) rose from 2.7% to 2.9%, while the core inflation dropped slightly to 3.2%.
These numbers implied that the Federal Reserve will maintain a hawkish tone in the next few meetings. The bank is mostly concerned about the state of inflation during the Donald Trump administration because of some of his policy proposals.
Trump has pledged to cut taxes, increase tariffs, and deport millions of undocumented migrants. These highly inflationary actions will make it hard for the Federal Reserve to achieve its 2% target.
On top of this, the recent fires in Los Angeles will lead to higher inflation, especially on rent and housing.
There will be no major economic data from the US and EU this week. The key data to watch will be the flash manufacturing and services PMI data from the US and EU. These numbers will provide more information about the health of the two regions at the start of the year.
EUR/USD technical analysis
The EUR/USD exchange rate has remained under pressure in the past few months. It has formed a descending channel in the past few weeks. The MACD indicator has formed a bullish divergence pattern, while the Relative Strength Index (RSI) has formed a symmetrical triangle pattern.
It has remained below the 50-day moving average, a sign that the downward trend is still intact. Therefore, the pair will either remain in this range this week or have a bullish breakout. If this happens, the next point to watch will be the 50-day moving average at 1.0470. The alternative scenario is where the pair drops to the lower side of the channel at 1.0155.
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