EUR/USD Forex Signal: More Downside Amid Fed, ECB Divergence

Bearish View

• Sell the EUR/USD and set a take-profit at 1.1150.

• Add a stop-loss at 1.1300.

• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.1250 and a take-profit at 1.1350.

• Add a stop-loss at 1.1150.

The EUR/USD pair continued declining on Monday as investors focused on last week‘s decisions by the European Central Bank (ECB) and the Federal Reserve. The pair also reacted to the happenings in Washington and the rising number of Omicron cases. It is trading at 1.1235, which is lower than last week’s high of 1.3560.

ECB and Fed Divergence

Last week was the most important one for the EUR/USD pair as the Fed and the ECB delivered their rate decisions.

The ECB decided to leave interest rates unchanged and signalled that it wont hike rates any time soon. The bank hinted that it will only hike rates when it ends its quantitative easing (QE). It signalled a bit of concern about the Omicron variant that is spreading across the European Union.

On the other hand, the Federal Reserve decided to leave interest rates unchanged between 0% and 0.25%. The bank also decided to increase the size of its tapering to about $30 billion. As such, the bank signalled that it will end the asset purchases in March next year. It also expects that it will implement three rate hikes next year. Therefore, it is clear that the Fed and ECB have diverged on their policies.

The EUR/USD is also reacting to the happenings in the United States. On Sunday, Senator Joe Manchin of West Virginia warned that he will not support Joe Bidens Build Back Better (BBB) social program. This is a $1.75 trillion bill that will provide significant financing to families and climate change initiatives. Without his vote, it means that the bill is doomed. This is a major setback for Joe Biden as we move into a mid-term year.

EUR/USD Forecast

The EUR/USD pair has been in a major bearish trend in the past few weeks. The pair fell from a high of 1.1690 in October to 1.1188 in November. That was about 4.40% decline. It is now trading at 1.1235, which is about 0.50% above last months low.

The pair is also below the key support level at 1.1357, where it has struggled to move above in the past few weeks. It has also moved below the 23.6% retracement and the 25-day moving average. The Relative Strength Index (RSI) has also moved slightly below the neutral level of 50. Therefore, the pair will likely keep falling as bears target the key support at 1.1180.