The EUR/USD pair rose to 1.0750 and even slightly higher on Tuesday, but then a reversal in favor of the US currency occurred, and a new decline in quotes began in the direction of the corrective level of 161.8% (1.0614). The U.S. consumer price index for January was the most important release of the previous day. I stated in my last post that several economists were worried about receiving a "surprise" in the impending release. For example, Goldman Sachs analysts predicted that inflation would rise rather than fall in January, as everyone expected. In the end, Goldman Sachs' prediction came very close to coming true, although inflation in the US nonetheless slowed down for the sixth consecutive month. However, this time around, the decrease in consumer prices was just 6.4% instead of 6.5%. Additionally, core inflation fell by 0.1%, which is a more significant indicator for the Fed. Because inflation once again slowed down while the rate of reduction sharply decreased, traders were unsure of what these numbers signified at first. However, the dollar eventually increased, as it should have.
The Fed may increase the rate two or three more times this year as a result of the decline in the rate of inflation reduction. Following the release of yesterday's report, the likelihood of three additional PEPP tightenings quickly increased. Traders are currently anticipating a 0.25 percent increase in March, May, and June. And if the upcoming reports are just as weak as the one from January, then another tightening of four is not ruled out. The US dollar should be supported by this aspect since it signals a larger rate increase than traders had anticipated. As a result, the euro/dollar pair may continue to decline in the near future. However, do not rule out the possibility that the ECB may also express a harder stance in light of the inflation rate's gradual decline.
The pair was held under the upward channel on the 4-hour chart. Since the pair left the channel where they had been since October, I believe this moment to be of utmost importance. The current "bearish" trading sentiment offers the US dollar good growth chances with targets of 1.0610 and 1.0201. The likelihood of a further decline in the pair is increased by the CCI indicator's new "bearish" divergence.
Report on Commitments of Traders (COT):
Speculators opened 9,464 long contracts and 2,099 short contracts during the most recent reporting week. Major traders' attitude is still "bullish" and has somewhat improved. Currently, 238 thousand long futures and 103 thousand short contracts are all concentrated in the hands of traders. The COT figures show that the European currency is now growing, but I also see that the number of long positions is over 2.5 times greater than the number of short positions. The likelihood of the euro currency's growth has been steadily increasing over the past few months, much like the euro itself, but the information background hasn't always backed it up. After a protracted "dark time," the situation is still favorable for the euro, therefore its prospects are still good. Until the ECB gradually raises the interest rate by a percentage of 0.50%, at least.
News calendar for the USA and the European Union:
EU – volume of industrial production (10:00 UTC).
US – retail sales volume (13:30 UTC).
EU – ECB President Lagarde will deliver a speech (14:00 UTC).
US – volume of industrial production (14:15 UTC).
Both the American and European Union economic event calendars have two entries for February 15. I suggest you pay close attention to Lagarde's speech and retail sales in the US. The information background may have a weak to moderate impact on traders' attitudes today.
Forecast for EUR/USD and trading advice:
When the pair recovers from the 1.0750 level on the hourly chart, new sales of the pair with a target of 1.0614 are probable. On the 4-hour chart, purchases of the euro currency are possible when it recovers from the level of 1.0610 with a target of 1.0750.