EUR/USD: forecast following the rebounds off of the recent declines

The EUR/USD rebounded from the yearly lows and is trading with a bid tone, finding buyers on every downside. So here is a bullish case for 2022, supported by technical and fundamental factors.

EUR/USD is the most important currency pair. As well as being the most popular among retail traders due to low trading costs and tight spreads, it is also the most liquid.

It reached a new low in 2022 compared to 2021, on the back of the FED's hawkish statement at the first FOMC meeting in the new year. Investors bought the dollar on the assumption that the Fed would raise the federal funds rate in March - and they were right, the Fed confirmed its willingness to start a new tightening cycle.

After all, US inflation hit 7.4% in January, its highest level in 35+ years.

But the currency market reflects the value of one currency against another. That said, this means that the volatility of a currency pair is determined by factors affecting both currencies.

In other words, the European Central Bank's monetary policy and decisions also matter.

Triangular formation points to more upside while above the B-D trend line
The formation of a possible contraction triangle on the daily EUR/USD chart cannot be ignored. The consolidation started from the 2017 lows, and the market seems to have already completed four segments.

A triangle has 5 segments, all of which are corrective if we are to interpret it according to Elliott wave theory. Each segment is labelled with letters, so the four completed segments are abcd. This means that one more wave, the last one, is due, and usually it retraces much more than 50% (61.8%) of the previous segment.

As such, EUR/USD looks like a buyer here, provided it does not fall below the BD trend line. This trendline should hold until the end of the triangle.

ECB's hawkish pivot supports the euro lower
The ECB took the market by surprise on Thursday by delivering a hawkish turn. It was only last December that the central bank assured the markets that it would not raise interest rates in 2022, but it changed its mind rather quickly.

Under pressure from rising inflation, it signalled a hawkish pivot. As a result, the EUR/USD rebounded from the lows and the electronic wave seems to have begun.