Bullish pattern
- Buy the EUR/USD pair and set a take-profit at 1.0532.
- Add a stop-loss at 1.0300.
- Timeline: 1-2 days.
Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0300.
- Add a stop-loss at 1.0532.
The EUR/USD pair rose even after the January inflation report topped analyst estimates, bolstering the case for higher interest rates for longer. The pair rose to a high of 1.0426 on Thursday morning, higher than the year-to-date low of 1.0177.
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US inflation and Federal Reserve cuts
The EUR/USD pair rose as the US dollar softened following the strong inflation data on Wednesday. According to the Bureau of Labor Statistics (BLS), the headline Consumer Price Index (CPI) rose from 2.9% in December to 3.0% in January, while the core figure rose from 3.2% to 3.3%. The two numbers are solidly above the Federal Reserve’s target of 2.0%.
These numbers came a few days after the US released a strong nonfarm payrolls (NFP) report. The economy added over 140,000 jobs in January, while the unemployment rate dropped to 4.0%.
Therefore, a combination of higher inflation and falling unemployment rate mean that the Federal Reserve will not cut interest rates any time soon. In the last meeting, officials hinted that the bank will deliver two rate cuts later this year.
There are chances that the Fed will either maintain interest rates steady or even hike them later this year. The case for a hike has been strengthened by the fact that Donald Trump has started to impose tariffs, which will raise prices of most items. For example, a 25% tariff on a vehicle from Mexico that now cost $50,000 implies a $12,500 increase.
The tariff will also lead to weaker economic growth as consumer spending slows. That would make it difficult for the Federal Reserve to hike interest rates.
The next key EUR/USD news to watch will be the upcoming European industrial production numbers, Germany inflation report, and European economic forecasts.
EUR/USD technical analysis
The EUR/USD exchange rate has held steady this week as it rose for three consecutive days. It has rebounded and retested the 23.6% Fibonacci Retracement level and the 25-day moving average.
The pair has also formed a double-bottom pattern at 1.0226 whose neckline was at 1.0532. A double bottom is one of the most bullish chart patterns in the market. It has also formed a diamond chart pattern, a popular bullish reversal sign.
Therefore, the EUR/USD pair will likely rebound and retest the upper side of the diamond at 1.0532.
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