- On Thursday, the shared currency advances 1.22% against the dollar.
- The ECB recognizes that the risks of inflation are biased to the “upside”, not transitory.
- EUR/USD has a bearish bias, but a daily close above 1.1440 could change the bias to a neutral-bullish point.
The EURO rallied almost 180 pips from daily lows towards 1.1450, 20 pips above the 100 DMA. Pulled back a bit above though as bulls take a breather towards December 2021 highs around 1.1482. At the time of writing, the EUR/USD is trading at 1.1439.
ECB decision spurred EUR rally
Thursday’s session did not disappoint at all. The ECB released its monetary policy decision, where the central bank kept everything unchanged. However, it is worth noting that, for the first time, the ECB acknowledged that “the risks to the inflation outlook are tilted to the upside”, which is perceived by investors as an aggressive stance, as evidenced by the pair’s reaction.
One point of note is that ECB President Christine Lagarde, when asked about raising rates, backed down and refused to say that “it is very unlikely that we will raise interest rates in 2022”. When Lagarde was asked about the possibility of the ECB raising rates in 2022, she said that “it never makes commitments without conditions; will be paying attention to the data.”
Analysts at ING mentioned that “Lagarde opened the door to an acceleration of asset purchase reductions and a rate hike this year”.
Meanwhile, as Lagarde finished her press conference, Reuters reported that “ECB policymakers see policy change at March meeting if inflation doesn’t ease.”
Meanwhile, the US economic calendar presented the ISM non-manufacturing PMI for January, which came in at 59.9, four tenths higher than the 59.5 forecast by analysts, but below December’s reading of 62.3. Additionally, Initial Jobless Claims for the week ending January 29 came in at 238,000, better than the 245,000 forecast by analysts, and lower than the previous week’s upwardly revised 261,000. The market mostly ignored the news as EUR/USD traders focused on the ECB.
Now that the ECB meeting is in the rearview mirror, EUR/USD traders are focused on the US Non-Farm Payrolls report for January, expected at 199k. However, Wednesday’s ADP report with companies cutting 300,000 jobs could be a prelude to the figure.
EUR/USD Price Forecast: Technical Outlook
The EUR/USD daily chart shows that the pair is testing the 100 DMA at 1.1430, after a bullish breakout of the 50 DMA at 1.1312, in a jump of 180 pips. Despite the strong bullish move, from a technical perspective still bearish bias.
For EUR/USD from a technical perspective, to move from a bearish bias to a neutral-bullish stance would first need a daily close above the confluence of the 100 DMA and the upper trend line of the Pitchfork channel that it is close to the 100 DMA. In that outcome, the first resistance would be the Jan 14 daily high at 1.1482, followed by 1.1500.
If the above is not met, the EUR/USD would drop below 1.1400. Next support would be an uptrend line, drawn from Nov 2021, lows around 1.1320-40, and then the 50 DMA at 1.1312.
Additional technical levels
Source: Fx Street
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