Another Small Double-Top Pattern Forms

The EUR/USD pair also reacted to the mixed economic data from the US.

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The EUR/USD price rose for two straight days even after more positive economic data from Europe. The pair, which bottomed at 1.0888 on Friday, bounced back to a high of 1.0990. It remains below last week’s high of 1.1000.

The EUR/USD is still reacting to last week’s actions by the European Central Bank (ECB) and the Federal Reserve. The two banks left rates unchanged but expressed different views of what to expect in 2024.

In the US, the Fed pointed to three rate cuts in 2024 while in Europe, Christine Lagarde remained mum about future hikes. Still, there are signs that the bank could cut rates in the coming months.

Data by Eurostat showed that the headline Consumer Price Index (CPI) retreated by 0.6% in November, a deeper dive than expected. Core inflation also dropped by 0.6%. The two fell to 2.4% and 3.6% on a YoY basis, respectively.

The hopes of an ECB rate cut came from Francois Villeroy, the head of the French central bank. In a note, he noted that rates should remain above 4% but that the bank should consider slashing them if inflation continues falling.

The challenge for the ECB is that the European economy is on the cusp of moving into a recession. It contracted in the third quarter as exports and consumer spending retreated. There are also signs that this weakness is continuing as the flash manufacturing and services PMIs disappointed.

The EUR/USD pair also reacted to the mixed economic data from the US. The data revealed that building permits dropped from 1.49 million in October to 1.46 million in November. Housing starts, on the other hand, rose from 1.35 million to 1.56 million.

There will be no economic data from the US and Europe on Wednesday while volumes will be low since many traders have closed for the Christmas holiday.

The EUR/USD pair bounced back after crashing to 1.0888 on Friday. This was an important price that coincided with the Woodie pivot point. It has now moved back to the median line of the Andrews Pitchfork tool. Also, it has remained above the 50-period and 25-period Exponential Moving Averages (EMA).

The Relative Strength Index (RSI) is nearing the oversold level of 70. Additionally, it also seems to be forming another smaller double-top pattern. Therefore, the pair will likely resume the bearish trend in the next few days and retest the neckline at 1.088. This view will be invalidated if it moves above 1.100.