Bullish View

• Buy the EUR/USD pair and set a take-profit at 1.0500.
• Add a stop-loss at 1.0225.
• Timeline: 1-2 days.

Bearish View

• Set a sell-stop at 1.0375 and a take-profit at 1.0300.
• Add a stop-loss at 1.0500.

The EUR/USD exchange rate rebounded for the second straight day as the recent surge in the US dollar index cooled. After plunging to a low of 1.0223 on January 2, the pair has rebounded to 1.0436.

US Dollar Softens Ahead of NFP Data

The EUR/USD pair bounced back as the downtrend towards parity remained elusive. This rebound happened as the greenback slipped. The dollar index slipped by over 60 basis points to $108.15, much lower than last week’s high of $109.3.

American bond yields continued rising, while the stock market charged ahead as the January Effect continued. The yield on the 10-year rose to 4.60%, while the 5-year and 30-year rallied to 4.83% and 4.41%.

The euro rallied after Europe published mixed economic numbers. In Germany, inflation data showed that the headline Consumer Price Index (CPI) rose from minus 0.2% to 0.4%, higher than the median estimate of 0.3%. It rose from 2.2% to 2.6% on a year-on-year basis.

These numbers and last week’s Spanish inflation data suggest that the European Central Bank (ECB) may adopt a more hawkish tone than expected. This view is justified by more data showing that the economy was doing modestly well, as the Eurozone services and composite PMI rose to 51.6 and 49.6, respectively.

Meanwhile, a senior Fed official in the United States, Lisa Cook, expressed a more hawkish tone. She noted that the bank may be more cautious about interest rate cuts. She cited the stubbornly high inflation rate and the resilient labor market.

The remainder of the week will provide more data on the labor market. ADP will publish the private payroll data on Wednesday, while the Bureau of Labor Statistics will release the latest NFP numbers on Friday.

EUR/USD Technical Analysis

The EUR/USD exchange rate bounced back after bottoming at 1.0225 on January 2. It retested the important psychological point at 1.0400 and the upper side of the descending wedge pattern shown in black. A wedge is a popular bullish reversal pattern.

The pair has remained below the 50-day and 25-day Exponential Moving Averages (EMA), meaning that it is still in a downtrend. Also, the Relative Strength Index (RSI) has formed a symmetrical triangle pattern below the zero line.

Therefore, because of the falling wedge, the pair will likely have a bullish breakout as bulls target the key resistance level at 1.0500. It may eventually retest the resistance at 1.0600 and then resume the downtrend.

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