EUR/USD Forex Signal: Forming of a Small Double-Top Pattern
As signs of a divergence between the Federal Reserve and the European Central Bank (ECB) emerged, the EUR/USD pair has been strongly bullish.
Bearish outlook
Set a take-profit of 1.0717 on the EUR/USD pair.
Put a stop-loss order at 1.0850.
Time frame: 1-2 days.
Bullish outlook
Set a take-profit of 1.0900 on the EUR/USD pair.
Put a stop-loss order at 1.0750.
The EUR/USD exchange rate fell slightly in low volume as the market awaited important economic data from the United States and Europe. It fell to 1.0816, just a few points below its peak for the month. After falling below parity in 2022, the pair has been on a strong uptrend.
Divergence between the Fed and the ECB?
As signs of a divergence between the Federal Reserve and the European Central Bank (ECB) emerged, the EUR/USD pair has been strongly bullish. The United States has produced several positive numbers, implying that the Fed will continue its pivot in the coming months. Inflation has fallen for six months in a row, and the unemployment rate has fallen to 3.5%.
European inflation, on the other hand, remains elevated. Inflation remains close to 10%, according to data released earlier this month. As a result, ING analysts believe the bank will raise rates by 125 basis points in the first half of the year. It will then maintain rates at that level until 2024.
Their viewpoint supported what the governor of the Finnish central bank said last week. He believes that the ECB should continue to raise interest rates.
As a result, ING analysts decided to revise their euro forecast. After being bearish for a while, they now believe the pair will remain bullish this year. They cited interest rate differentials or spreads between the United States and Europe, as well as the bloc's improving fundamentals.
Recent data and news indicate that Europe will avoid the recession that most analysts predicted. The energy shock that most people expected did not occur because Europe had enough natural gas in storage.
At the same time, winter was much warmer than expected, and LNG flows from the US and other sources have increased dramatically in recent months.
Forecast for the EUR/USD
In recent weeks, the EUR/USD pair has been in a bullish trend. This week's rally faded as the pair formed a small double-top pattern. This pattern is typically interpreted as a bearish sign in price action analysis. In addition, the pair remained slightly above the 25-day and 50-day moving averages. It is also slightly above the key resistance level of 1.0718, which was the highest on December 30.
As a result, the pair is likely to retreat slightly and retest the key support level of 1.0717. This trade's stop-loss will be set at 1.085.