Selling EUR/USD After It Fails to Hold Gains
Skerdian Meta • 1 min read
EUR/USD has turned bearish in the long term since June last year, after inflation surged above 5% in the US, which forced the FED to start considering it seriously after ignoring it for some time. The rhetoric from the FED started turning hawkish so the USD turned bullish in the summer and accelerated the uptrend until the end of 2021 as the FED turned increasingly hawkish.
The FED has started to reduce the balance sheet by $15 billion per month, while market expectations are for three 25bps rate hikes this year, although some are expecting a 0.50% hike in March. This has been keeping EUR/USD bearish, although inflation is surging in Europe as well. Last week we saw Eurozone inflation increase further while today’s UK CPI (consumer price index) inflation report also showed a jump, which you can find below.
This pair retraced higher last week, getting close to 1.15 but this week it turned bearish and gave back most of the gains, showing bearish pressure. Now, we decided to sell the small retrace below the 50 SMA and the price is already reversing down, since the US is ahead of everyone else regarding inflation and the FED is ahead regarding monetary tightening.
UK December CPI Inflation Report
- December CPI YoY +5.4% vs +5.2% expected
- November CPI YoY +5.1%
- Core CPI YoY +4.2% vs +3.9% expected
- Prior core CPI was +4.0%
That’s the highest reading since March 1992 as UK inflation pressures continue to soar. The BOE will be meeting next on 3 February and given the circumstances, surely we will see a hike to the bank rate. The pound is keeping steadier in light of the report, with cable holding around 1.3600-10 levels still for now