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US Dollar Price Outlook: EUR/USD Breaks Higher, Will The Rally Continue?

US Dollar Price Outlook: EUR/USD Breaks Higher, Will The Rally Continue?

2020-12-17 17:15:00
Peter Hanks, Analyst

EUR/USD Price Outlook:

  • EUR/USD enjoyed a topside break out above the 1.2153 mark which opened the door for further gains
  • With the Federal Reserve committed to its program of bond-buying and low rates, USD weakness seems likely to persist
  • Further still, IG client sentiment reveals retail traders are overwhelmingly net-short EUR/USD, a hint the pair might continue to rally
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US Dollar Price Outlook: EUR/USD Breaks Higher, Will The Rally Continue?

The US Dollar has weakened since March and the recent Federal Open Market Committee meeting may have paved the way for a continued decline in the US Dollar Basket (DXY), despite a recovering global economy. Presented by Fed Chairman Jerome Powell himself, Fed officials found few reasons to curtail bond purchases or raise rates prior to 2023, meaning USD bears might remain in control. While global central banks are in a race to the bottom in many ways, the Fed’s bond-buying puts it a leg above the rest and this dovish advantage is visible in EUR/USD rates.

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Recently surging to its highest level since April 2018, EUR/USD added another victim to its growing list of breached technical levels in the last few months. It has made considerable progress toward ending the multiyear decline it found itself in as a result. European Central Bank officials have already taken note but, judging by their commentary, have little interest in curtailing continued Euro strength in the near future. Still, this may become a concern in the future.

EUR/USD Price Chart: Daily Time Frame (January 2018 – December 2020)

eurusd daily price chart

In the meantime, the steady fundamental landscape and recent technical break suggest EUR/USD may continue higher still. Since the pair trades at levels not seen in more than two years, immediate technical barriers are rather sparse. Nevertheless, prior highs from early 2018 – the nearest of which does not arrive until 1.2405 - may provide some influence if EUR/USD pushes higher.

EUR/USD Price Chart: 4 – Hour Time Frame (August 2020 – December 2020)

eurusd 4-hour price chart

Despite the recent break higher, shorter-term pullbacks are not out of the question and could serve as healthy consolidation. In the event of a reversal, early support may reside around the 1.2174, 1.2150 and 1.2100 levels. A potential “line in the sand” that, if broken, could warn of further losses rests at the December swing-low of 1.2059.

EUR/USD BEARISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 12% -7% 1%
Weekly 16% -4% 4%
What does it mean for price action?
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As it stands though, EUR/USD appears tilted to the topside. IG client sentiment data reveals retail traders remain net-short suggesting EUR/USD could continue to rise since we typically take a contrarian view to crowd sentiment. Follow @PeterHanksFX on Twitter for updates on this pair.

--Written by Peter Hanks, Strategist for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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