EUR/USD Technical Analysis: German ZEW and US Inflation

Mahmoud Abdallah

The euro’s gains were the strongest since the week ending on November 23. In the immediate aftermath of the US elections they came amid strong indications that it was mostly profit-taking by investors who feared bets against the single European currency.

For five trading sessions in a row, the price of the euro currency pair against the dollar, EUR / USD, is moving in a limited range. The market is awaiting momentum to complete the recent upward correction path, which stopped at the resistance level of 1.1927 and stabilized around 1.1892 at the time of writing the analysis.

As I mentioned before, the euro’s gains will not last for long, as Europe is still suffering from an increase in the number of COVID-19 infections. There are strict restrictions on activity that may negatively affect the chances of the expected economic recovery during the current year 2021. During last week’s trading, the EUR / USD pair witnessed its best weekly performance since last November.

The euro’s gains were the strongest since the week ending on November 23. In the immediate aftermath of the US elections they came amid strong indications that it was mostly profit-taking by investors who feared bets against the single European currency.

Commenting on the EUR / USD performance, “With the European Recovery Fund (ERF) stuck in a German courtroom, the EUR reclassification story may have to be put on hold,” says Chris Turner, Head of Global Markets and Regional Research Head at ING.

It appears that higher US yields are poised to force the EUR / USD pair down to 1.1800 again. In contrast, the only bullish argument we can see for the EUR / USD pair this week is the case of strong second-quarter data from the US that has already been fully priced and investors' desire to jump early on the EUR / USD recovery story - which should show more signals during this quarter ”.

These factors may help explain the diminishing attractiveness of the euro as a “financing currency” despite the strengthening of the US economy which boosted US bond yields just as the European Central Bank’s quantitative easing program was crushing those in Europe.

In general, analysts and economists have responded with skepticism if not worried about the possibility of withdrawing the European quantitative easing program at such a stage, especially while there are delays in the availability of funding from the European Recovery Fund of 750 billion euros. The fund is under a legal challenge in Germany, and this is likely to continue for weeks or even months now, as the reason may be that the market is slow to buy into the recovery of the euro against the dollar as a result.

According to the technical analysis of the pair: The success of the upward correction of the euro against the dollar, EUR / USD, it is necessary to breach the psychological resistance of 1.2000, which attempts to correct have failed to break until now.

An attempt by bears to return to the support area of ​​1.1790 will end the idea of ​​an upward correction, and then the currency pair will start the strongest downside journey in the long run. I still prefer to sell the currency pair from every downside. Economic divergence, pollination, containment of the outbreak and continued stimulus plans are in favor of the strength of the US dollar for a longer period.

As for today's economic calendar data: The currency pair will focus on announcing the reading of the ZEW index of German economic sentiment, then the US inflation figures through the consumer price index

EURUSD

Mahmoud Abdallah
Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.

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