Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0400.
- Add a stop-loss at 1.0550.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0510 and a take-profit at 1.0600.
- Add a stop-loss at 1.0400.
The EUR/USD exchange rate held steady near its highest level since January 28 ahead of the upcoming Federal Reserve minutes. It rose to a high of 1.0515 on Tuesday, up by almost 3% from its lowest level this year.
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The EUR/USD pair has done well in the past few days as the US dollar index (DXY) retreated. It has dropped from a high of $110 in January to $106.2 even after the US inflation data came out bigger than expected.
The headline Consumer Price Index (CPI) rose from 2.9% in December to 3.0% in January, while core inflation moved from 3.2% to 3.3%. These numbers mean that inflation has remained above the Federal Reserve target of 2.0%.
The next key catalyst for the EUR/USD pair to consider will be the upcoming Federal Reserve minutes on Wednesday. These minutes will provide more color about the last meeting and the deliberations among officials.
The Fed left interest rates unchanged at 4.50% in that meeting, and the statement removed the mention of cooling inflation. That was a sign that officials expect that inflation will remain higher for longer.
Jerome Powell confirmed this in his meeting last week. In it, he said that the Fed will not be in a hurry to cut rates until inflation continues falling.
The EUR/USD pair has also bounced back as signs emerge that the European economy was doing relatively well. Recent manufacturing and services PMI numbers showed some moderate improvement, signaling that the ECB may decide to pause its interest rate cuts.
EUR/USD technical analysis
The four-hour chart shows that the EUR/USD pair has held steady in the past few days after bottoming at 1.0215 earlier this month. It has jumped and hit a key resistance level at 1.0510, the highest swing on January 27. The 50-period and 200-period moving averages have formed a bullish crossover, a key positive sign.
However, the Percentage Price Oscillator (PPO) indicator has formed a bearish crossover, which often leads to more downside. It has also formed a double-top pattern whose neckline is at 1.0215, its lowest swing on February 3.
Therefore, the pair will likely retreat in the next few days as sellers target the 200-period moving average at 1.0400. A move above the key resistance level at 1.0510 will invalidate the bearish EUR/USD forecast as it will signal that there are more bulls remaining.
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