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Euro Outlook: EUR/USD Just Holding On To 1.17 as EUR/GBP Attempts New Breakout

Euro Outlook: EUR/USD Just Holding On To 1.17 as EUR/GBP Attempts New Breakout

Daniela Sabin Hathorn, Analyst

Key Talking Points:

  • EUR/USD falls back within key support area as USD outperforms
  • EUR/GBP stages new attempt at breaking out from descending channel

EUR/USD has once again bounced off its key support area after falling to 1.1702 in Tuesday’s session. This is its lowest level since the beginning of November, and the third time the pair enters its support area (1.1738 - 1.1700) since then. Breaking below the 1.17 mark seems inevitable now but we may see another upside reversal before sellers are actually able to break this level. I’m also not sure whether they’ll be able to achieve much consolidation when they do, as buyers are swiftly picking up momentum once a break lower is achieved.

EUR/USD Daily chart

Euro Outlook: EUR/USD Just Holding On To 1.17 as EUR/GBP Attempts New Breakout

Despite the weaker retail sales reported earlier in the day, the US Dollar picked up some defensive momentum and was the best performer in yesterday’s session, which put extended pressure on EUR/USD. There is still some further upside for the Dollar in the short-term so that’s why I believe we still have room for a break below 1.17 for EUR/USD, and the next area that attracts my attention is 1.1624 – 1.1613, which was key at stopping bears bringing the pair lower back in September and October.

I do think there is a while before we get there but I struggle to see EUR/USD below 1.16 in the medium-term, so I would expect this area to offer good support. That said, there is little going for the Euro at the moment with increasing cases of the Delta variant dampening the region’s outlook, with growth momentum most likely having peaked over the summer. The ECB continues to defend its ultra-dovish monetary policy as inflation is thought to be transitory in nature, which is making the central bank fall behind its other peers, with no rate hikes expected until 2024.

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EUR/GBP DAILY CHART

Euro Outlook: EUR/USD Just Holding On To 1.17 as EUR/GBP Attempts New Breakout

EUR/GBP seems to be performing another false breakout of its descending channel, as Tuesday’s bullish momentum is being brought down in today’s session. After various attempts at breaking below 0.85 the pair finally managed to consolidate below this area over the last two weeks, but it found new resistance at 0.8450 and has now bounced up above 0.85 once again. The channel pattern has been pretty important for the pair over the last few months, but we are seeing increased attempts to break out of as of late, especially on the topside, which could be a sign that sellers are losing ground. I think at this point, a break above 0.8550 would likely strengthen euro bulls to achieve a meaningful push higher, but the pair is at risk of falling back into the descending channel if it remains stagnant too long.

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--- Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

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

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