Despite weak liquidity and the absence of major economic releases for a very short trading week due to the holidays. Recently, “EUR/USD” exchange rate moved in an upward rebound with gains that reached the 1.1122 resistance level, the highest for the pair in five months. Obviously, the possibility of the US central bank changing its interest rate policy direction towards lowering rates in 2024 is still negatively affecting the performance of the US dollar against other major currencies.
EUR/USD pair is preparing to react to the release of the number of weekly US jobless claims and pending US home sales figures today. Yesterday, the Federal Reserve's Richmond Manufacturing Index for December missed expectations at -7 with a reading of -11. Meanwhile, the Redbook index for the period ending December 22 recorded a change of 4.1% on an annual basis compared to 3.6% in the previous period.
Prior to that, the S&P/Case-Shiller home price indices for October missed expectations (on an annual basis) of 5% with a change of 4.8%. Also, the October housing prices index fell short of the expected change of 0.5% with a change of 0.3%. On another note, the Chicago Federal Reserve's national activity index for November improved to 0.03 compared to a reading of -0.66 in the previous period. Furthermore, the Dallas Federal Manufacturing Index for December improved to -9.3, up from -19.9 in the previous update. In the European Union, traders are looking ahead to Spanish November retail sales on Thursday, ahead of the CPI and CPI data on Friday.
According to Forex currency market trading: year-end selling keeps the US dollar under pressure, and the Euro/US dollar exchange rate reaches its highest levels in 5 months. In general, The US dollar was unable to achieve any progress in global markets, and in general trading volumes will remain very light during the remainder of this year, which will weaken overall activity. Therefore, if risk appetite remains strong, there will be room for further limited dollar selling.
Also, Attitude adjustment will be important. According to Barclays, “Our end-of-month rebalancing model indicates a strong sell signal for the dollar by the end of the month against all major currencies.”
On the monetary policy front, and in comments on Tuesday, former Fed Chairman Dallas Kaplan said he expects the Fed to cut US interest rates soon. According to Kaplan, “One of the reasons we got into this inflationary problem is because the Fed has been too accommodative for too long, even as the economy has improved, and I don't think it wants to make the same mistake on the other side, where it remains too restrictive,” he added; “With the decline in the economy and inflation. “She doesn’t want to make the opposite mistake either.”
Shortly, there has been no significant shift in the Fed's pricing of US interest rates, as markets remain very confident of the early move to cut interest rates. Traders are anticipating an 85% probability of a rate cut in March 2024 and are approaching a 100% probability of at least one move by May.
Technical analysis of the EUR/USD pair:
The price of the EUR/USD has now risen to trade several levels above the 100-hour moving average line. As a result, the currency pair has now entered the overbought levels of the 14-hour RSI. In the near term, and according to the performance on the hourly chart, it appears that the EUR/USD has completed an upward breakthrough from the formation of the ascending channel. Also, the 14-hour RSI appears to be supporting the upside after breaching overbought levels. Therefore, the bulls will target extended gains at around 1.1136 or higher at 1.1166 resistance. On the other hand, the bears will look to pounce on pullbacks at around 1.1070 or lower at the 1.1038 support.
In the long term, and according to the performance on the daily chart, it appears that the EUR/USD pair is trading within an upward channel. Moreover, the 14-day RSI appears to be supporting the long-term uptrend after breaking overbought levels. Therefore, the bulls will look for a continuation of the current winning streak towards 1.1243 or higher to the 1.1378 resistance. On the other hand, the bears will target long-term profits at around 1.0976 or lower at the 1.0838 support.
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