Euro Recovery Still at Risk

The EU and the UK reached a compromise that will smoothen trade relations between the two sides. 

• Sell the EUR/USD pair and set a take-profit at 1.0535.
• Add a stop-loss at 1.0670.
• Timeline: 1-2 days.

• Set a buy-stop at 1.0645 and a take-profit at 1.0730.
• Add a stop-loss at 1.0550.

The EUR/USD pair pulled back on Monday after the positive outcome of Brexit negotiations between the UK and the EU. The new deal on Northern Ireland provided relief even as concerns about the Federal Reserve and the European Central Bank (ECB) remained. It rose to a high of 1.0610, the highest point since Thursday.

The EU and the UK reached a compromise that will smoothen trade relations between the two sides. This deal, if voted by the UK parliament, will solve the biggest hurdle that has existed since the UK left the European a few years ago. It will also help to improve trade relations between the two sides. Still, the impact of the deal to the European economy will be minimal.

The EUR/USD pair rose after the relatively weak consumer and business confidence data from the UK. services and industrial sentiment pulled back to 9.5 and 0.5, respectively. Similarly, business and consumer survey declined from 99.8 to 99.7 as inflation remained at an elevated level. Consumer confidence remained intact at -19.0.

The other important data that came out on Monday was the latest US pending home sales numbers. The numbers revealed that sales jumped by 8.1% in January even as mortgage rates remained high. Other housing numbers scheduled for this week are expected to show that the sector is doing moderately well.

The key economic numbers to watch on Tuesday will be the preliminary inflation numbers from key European countries like France and Spain. In France, analysts expect the data to show that the headline consumer inflation rose by 6.1% in February. Similarly, in Spain, analysts expect that inflation rose to 5.9%.

The Conference Board will then publish the latest consumer confidence data. These numbers will provide more color about the state of the American consumer.

The EUR/USD pair has moved upwards this week after the EU-UK deal on Brexit. It jumped to a high of 1.0614, which was higher than this month’s low of 1.0533. It crossed the 25-day moving average and the important resistance point at 1.0612, the lowest point on February 17. The Relative Strength Index (RSI) has moved above the neutral point at 50.

I suspect that the pair will resume the bearish trend as investors assess the impact of the Brexit deal. If this happens, it will retest last week’s low at 1.0533.