EUR/USD Analysis
- Look out for the dip!
- ECB’s Lagarde Speech could support Euro gains.
- Technical pattern could lead to further EUR/USD downside.
EURO FUNDAMENTAL BACKDROP
The dollar is the talk of the town at the moment after Fed Chair Powell’s testimony and elevated U.S. inflation levels led to a fading greenback. The Euro benefitted along with most USD crosses in a short-term relief rally. The hawkish slant from the Fed with inflationary pressures mounting, aligns with a stronger dollar and rising U.S. Treasury yields and I foresee dollar longs picking back up soon.
Dollar strength has been largely priced in since late 2021 which has had the current underwhelming response in dollar upside however, fundamentals supporting the USD remains strong which could see market participants looking to buy dollar dips. Of course there is still room for the Euro to run but this is likely to be limited.
EUR/USD ECONOMIC CALENDAR
Source: DailyFX Economic Calendar
Coming up tomorrow is the ECB President Christine Lagarde’s speech which could turn slightly more aggressive after ECB member Luis de Guindos eluded to the more persistent threat of inflation. Outside of European events, the U.S. calendar later today will provide some interesting releases including initial jobless claims as well as several Fed speeches.
In early trading tomorrow, German GDP (2021) is set for a marked comeback and could give the Euro additional support should actual figures come in above estimates – German data is often a good indicator of the overall EU region. U.S. retail sales and consumer sentiment data for December are the standout high impact announcements to close off the trading week.
EUR/USD TECHNICAL ANALYSIS
EUR/USD DAILY CHART
Chart prepared by Warren Venketas, IG
Break above rising wedge pattern (yellow) invalidates the formation with focus on the 1.1500 psychological handle. With fundamentals backing the dollar, the Euro recovery is unlikely to extend too far. I suspect the guidance from the rising wedge (bearish continuation) should not be dismissed but rather picking up from a different point. Prices have now found resistance at the 100-day EMA (yellow).
The Relative Strength Index (RSI) reflects my outlook to some extend as it approaches overbought territory. The overbought zone should coincide with the 1.1500 level which may see the re-entrance of USD bulls.
Resistance levels:
- 1.1680
- 1.1500
Support levels:
- 1.1400
- 50-day EMA (blue)
- 20-day EMA (purple)
IG CLIENT SENTIMENT DATA UNCLEAR
IGCS shows retail traders are currently marginally long on EUR/USD, with 51% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment but the fact that traders are positioned roughly equally, there is currently no preferred directional bias.
| Change in | Longs | Shorts | OI |
| Daily | -8% | -11% | -9% |
| Weekly | -15% | 25% | -4% |
Contact and follow Warren on Twitter: @WVenketas
