This coming week will be an interesting and volatile week as both US Federal Reserve and European Central Bank (ECB) will announce their interest rate decision in the same week. In addition to that, Europe will also release its GDP, CPI, and inflation rate economic data.
EURUSD and all the markets including the stock market, commodities, and even the crypto market have had good rallies since the start of 2023. The market has priced in that the inflation rate has already peaked and slowed down and is expecting US Federal Reserve will be less aggressive on the interest rate hike.
EURUSD Bullish Factors
- In this coming Interest Rate decision, the consensus for the US Federal Interest rate decision is to raise 0.25% while for ECB is to raise 0.50%. If it happens as per consensus, then ECB is more aggressive on interest rate hikes than US Fed, which should lead EURUSD to rally further.
- The inflation rate for Europe is higher than the consensus. The market consensus is the CPI (YoY) will drop from 9.2% to 9.1%. However, if the actual inflation rate is higher than 9.1%, then it will force ECB to be more aggressive on rate hikes.
- Europe’s GDP is higher than expected. One of the key reasons for the EURUSD rally this month is that most of the Europe economic data are greater than the market consensus. A stronger economy means stronger currency.
- Technically, the EURUSD 50-day moving average (MA) is already crossover 200-day moving average. This is a sign of a long-term uptrend. However, all technical indicator is always about probability. It only means it has a higher probability to be a long-term uptrend. Nothing is guaranteed.
EURUSD Bearish Factor
- Even US Fed might really raise interest rates as the market consensus of 0.25%, Powell’s comment or guidance on the upcoming rate hike is critical. The market is expecting the US Fed to be less hawkish from now onwards, but it is still a high chance that US Fed might prove they are wrong. In this case, the market might re-price and lead to a new bullish trend of USD.
- On the monthly chart of the Dollar Index (DXY), the 50MA is still higher than the 200MA, signaling a longer-term uptrend. Furthermore, in 1981, there is a similarly steep drop in the dollar index as we have seen in recent months. After the steep drop, Dollar Index continues to rally to 160 as you can see in the following chart. Will history repeat itself?
- Commodity price has rebounded recently and this indicates that inflation might come back again. This might concern US Fed which will continue its hawkish approach to the rate hikes.
Recommendation
With this outlook, and to be on the safe side, we strongly recommend all Ophiuchus and Limitless EA users to schedule to stop trading for this period starting from 31 Jan till 3 Feb. You can use the stop trading period feature in the EA to do that. You can also decide to extend the stop trading period (eg, till 5 Feb and only start trade on the week after next) if you would like.
Disclaimer – Please note that Limitless Trading is not liable for our recommendation and is not responsible for any loss or profit caused by this recommendation. This is general advice without considering your personal circumstances. You should assess your personal circumstances and perform your own research to make decisions for your trading.
