EUR/USD And GBP/USD: Uptrend Could Be Losing Steam

Prices of the U.S. dollar’s counterparts continue trading upward, and when we look particularly at the EUR/USD we see that the pair broke in the direction anticipated by an inverted Head and Shoulders chart formation. Thus, the euro was pushed to the 1.09 resistance handle. The euro’s recent uptrend has largely been driven by the dollar sell-off and the European Central Bank’s hawkish stance to fight inflation by further interest rate hikes. The ECB is expected to raise rates by 50bps at its next rate decision in February. The Federal Reserve on the other hand is widely expected to slow its rate hike path, pointing toward a less hawkish approach. Markets await a 25bps rate hike at the Fed’s meeting next Wednesday.

EUR/USD: Bulls may try to push the pair up to 1.10 but considering the fact that the euro is close to overbought levels, the next leg up might be limited to 1.0970, for now. Bears will watch out for price breaks below 1.0830 and 1.0730 in order to sell the euro.

GBP/USD: The pound tested the 1.2450-area but since economic prospects in the U.K. are not looking too good, we doubt that there is far more upside potential. We expect the pair to fall back towards 1.23 – 1.2250.

From a fundamental backdrop, traders will watch Friday’s U.S. PCE deflator that could generate some volatility.

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