On Thursday, the EUR/USD pair rebounded from the retracement level of 161.8%, 1.1357, reversed in favour of the US currency and began to drop to 1.1250. However, tonight there was a reversal in favour of the EU currency, but the prospect of a decline to 1.1250 still remains. Such frequent reversals and weak movements indicate that traders are not active at the moment and are waiting for new important information to enter the trade more actively. There is almost no information backdrop this week. Yesterday, reports on European inflation and the number of initial and renewed jobless claims in the US had minimal impact on traders' sentiment. In both cases, the reaction from traders was as high as 20 pips. Yesterday, the ECB's last meeting report was published. It also had little effect on the sentiment of traders. Its contents reflected the mood of the bank governors. Some still believe that inflation is temporary and will start to slow down in 2022 even without decisions to tighten monetary policy.
Another part believes that inflation will be stronger and longer-lasting, so the regulator urgently needs to take control of the situation. There were similar disagreements at the Fed a couple of months ago. Their governors also refused to accept the risk of a permanent rise in the consumer price index. This has led to inflation soaring to 7% in the US. All FOMC members now support several rate hikes at once this year. Jerome Powell admitted that he had not expected prices to rise so much in the Senate. The same situation could be in the EU, where inflation is also rising. It may seem to be growing at a slower pace, but its rate of 5% may reflect a lag from US inflation. It is likely to reach 7% in a few months in the EU. If the ECB has no intention of raising rates this year, what will it do?
On the 4-hour chart, EUR/USD reversed downwards in favor of the US dollar and settled below 1.1404 that matches 127.2% Fibonacci correction level. Hence, the price might continue its decline towards 1.1148 that is 161.8% Fibonacci correction. However, the 4-hour chart also reveals the clear-cut trading range where the price has already settled. Obviously, traders will have to make huge efforts to push the price out of the range. A bullish divergence in the CCI indicator suggests a weak rally.
Economic calendar for US and EU
EU - Speech of ECB President Christine Lagarde (12-30 UTC).
US - Speech of Treasury Secretary Janet Yellen (16-30 UTC).
On January 21, the EU and US economic event calendars each contain an important event. The information backdrop is likely to be rather weak today, but could increase its impact on the mood of traders if Christine Lagarde announces something essential.
Outlook for EUR/USD and trading tips
I would recommend opening new short positions on EUR/USD in case the price closes exactly below the trend line on the 1-hour chart with the target at 1.1357. Meanwhile, we can keep existing short positions open with the target at 1.1250. Alternatively, we could buy the currency pair if the price closes above the upper border on 4H timeframe.