Bearish view

• Sell the EUR/USD pair and set a take-profit at 1.0385.
• Add a stop-loss at 1.0600.
• Timeline: 1-2 days.

Bullish view

• Buy the EUR/USD pair and set a take-profit at 1.0600.
• Add a stop-loss at 1.0385.

(Click on image to enlarge)

The EUR/USD pair rose to its highest level this year ahead of important economic data from the United States and Europe. It also recovered as the market waited for the upcoming central bank decisions by the European Central Bank and the Federal Reserve. It rose to a high of 1.0530, its highest level since December 10.
 

Economic data and central bank decisions

The EUR/USD pair recovered strongly after Donald Trump was inaugurated last week. The rebound is because the pair dropped sharply after the US election as investors focused on Trump's policies on immigration and tariffs.

He has toned down some of these policies, especially on tariffs. He insisted that he wait before imposing any tariffs on Chinese goods, which would have led to a disruptive trade war.

Trump has also not commented on European tariffs, which he warned about a few weeks ago. Those tariffs would lead to retaliation from one of the biggest buyers of American goods and services.

The EUR/USD will next react to the upcoming US consumer confidence report, which will also provide more color about the state of the American consumer.

The confidence report comes as the Federal Reserve starts their first interest rate decision. This bank will likely leave interest rates unchanged in this meeting. Officials will point to at least two rate cuts, especially now that inflation has remained above 2% for a while.

The European Central Bank will then start its two-day meeting on Wednesday and then deliver its interest rate decision on Thursday. Unlike the Fed, the ECB will likely deliver a jumbo rate cut and hint that it will maintain its data dependence. Recent numbers showed that the bloc’s manufacturing and services PMI numbers rose modestly in January.
 

EUR/USD technical analysis

The EUR/USD exchange rate rebounded after bottoming at 1.0180 on January 13. It has bounced back to 1.0485, its highest level in almost 3 weeks.

The pair has moved slightly above the 50-day moving average and has retested the lower side of the Ichimoku cloud indicator.

The Relative Strength Index (RSI) indicator has continued rising, forming an ascending channel. It has moved above the neutral point at 50 for the first time this year.

However, the Average Directional Index (ADX) has continued falling, a sign that the trend is losing momentum. Therefore, the downward trend will likely resume ahead of the decisions of the ECB and Fed. The next point to watch will be at 1.0385.

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