The Euro to Dollar “EUR/USD” showed the potential for a 2.34% advance last week but ultimately failed at a key level, closing the week with a gain of 1.25%. According to forex market trading, the EUR/USD exchange rate rose to the psychological resistance of 1.10 in the latter half of the previous week after the Federal Reserve's clear policy pivot announcement last Wednesday, which "sent the dollar into a tailspin." Concurrently, the Euro to Dollar quickly returned to the support level of 1.0892 before settling around 1.0915 at the time of writing this analysis and ahead of the announcement of inflation figures for the Eurozone.
What is expected for the euro price in the coming days?
EUR/USD price failed at the 1.10 psychological resistance, many technical analysts warned that if history repeats, the pullback could be deep. In this regard, KBC Markets says: “The test of the 1.10 level for the EUR/USD was rejected at the end of November, as the markets were considering the opportunity for the European Central Bank to soften its stance, which led to the EUR/USD pair returning to the zone. 1.0725”. For his part, Jeremy Bolton, a market analyst at Reuters, says: “The EUR/USD pair has rarely stayed outside the 1.04-1.11 range this year.” “The recent rise above 1.10 was followed by a rapid decline to the mid-range in 2023.”
Explaining the decline of the Euro against the Dollar (EUR/USD) before the weekend, the analyst says, "There is no bad time at all to take profits—this might be the right time." Therefore. if the drop in the Euro to Dollar rate is a result of profit-taking, the upward movement may extend towards the 1.10 level in the coming days. Moreover, KBC Market adds that breaking the 1.10 area opens the door to testing the 2023 peak at the 1.1276 level.
For his part, Stefan Melin, senior forex analyst at Danske Bank, said in a note issued yesterday: “We look to buy on dips in the near term due to the impact of weaker US economic data.” Adding, “In the near term, we still see good opportunities for the US dollar to weaken against the backdrop of significant easing in financial conditions over the past month, coinciding with a bearish seasonality for the US dollar at the end of the year.”
Overall, risk sentiment could remain buoyant (which tends to punish the US Dollar) until the end of the year, following the Federal Reserve's decision last week to abstain from market expectations of multiple US interest rate cuts in 2024, a stance in contrast to the more cautious approach taken by the European Central Bank (ECB) just one day later. Shortly, this could mean that declines in stocks and the EUR/USD are relatively shallow, even if gains above 1.10 resistance are a long way off this week.
It was Fed board member John Williams who sparked profit-taking in the EUR/USD rate before the weekend, who said the Fed would remain data-driven and, if the trend of easing inflation reversed, would be prepared to tighten policy. once again. Markets interpreted the comments as a retreat from the rapid rise in market bets for US interest rate cuts in 2024 that followed the US Federal Reserve's mid-week meeting and served as a reminder that cooler heads must prevail.
Generally, there are no major economic releases from the US or Eurozone scheduled this week, and market liquidity is likely to decline before the Christmas period. Thus, this ensures that market-moving calendar events will be few and could frustrate those looking for a stronger EUR/USD. Moreover, the poor liquidity can lead to large short-term moves that provide opportunities on both sides of the EUR/USD equation, but are likely to be short-lived and eventually faded by traders.
EUR/USD technical Analysis Today:
As mentioned before, the psychological resistance at 1.1000 will remain a key for the bulls to take control of the EUR/USD currency pair's direction, allowing for upward technical movement. However, this requires further positive momentum for the Euro, and today there may be an opportunity if inflation figures for the Eurozone come in stronger than expected. Therefore, the additional pressure on the European Central Bank for tightening. On the other hand, based on the performance on the daily chart, breaking the support at 1.0830 will be significant in dissipating bullish prospects, providing an opportunity for bears to move strongly downward. Shortly, the formation of the head and shoulders pattern may Favor the bears in this scenario.
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