EUR/USD dropped to lower ground but recovered nicely in a week that saw more volatility than the prior week. Final inflation figures stand out in the week before the ECB decision. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
The ECB meeting minutes delivered more action than usual: the document detailing the December meeting included a hint that the ECB may change its guidance about QE, perhaps pre-announcing the end of bond-buying already in the January meeting. This sent the euro higher. Apart from that, investor confidence, retail sales, and industrial production all beat expectations with only a few misses. In the US, the greenback suffered from worries that China will slow or halt buying of US treasuries. The half-denial from the Chinese authorities only partially helped the greenback. US inflation remains not-so-great. The technical behavior of EUR/USD was quite good.
EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar dropped early on, but held the 1.1910 level (mentioned last week) very nicely. It then rebounded, topping 1.20.
Technical lines from top to bottom:
1.2240 was a stepping stone on the way down for the pair in late 2014. Further below, 1.2185 also held the pair back at that time.
The cycle high of 1.2090 looms above. 1.20 is the obvious round level and also worked as resistance in September.
1.1950 was the high level seen in November and a stepping stone towards 1.20. 1.1860 capped the pair in August and in October while working as support in September.
1.1820 worked as a cushion to the pair in late November and works as weak support. 1.1760 served as a cushion in November and also played a role beforehand.
1.1710 was the high of August 2015 and also worked as support in November. 1.1670 was a swing low in October. and hasn’t worked too well.
The 2016 high of 1.1620 slowed down the pair also in October. 1.1555 was the low point in November and works as a cushion. It is followed by the round number of 1.15.
I remain bullish on EUR/USD
If the reports from China are correct, diversyfing away from US Treasuries will be beneficial for the euro, the second currency, the euro. In addition, the gradual advance of the ECB towards removing stimulus contrasts the Fed’s dilemma with low inflation.
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