EUR/USD Daily Forecast – Euro Posts Five Consecutive Daily Declines
EUR/USD pushed sharply lower last week, falling to levels not seen since October. The pair has been weighed by a rising dollar and an improvement in risk appetite.
But while the decline last week reaffirms the downtrend, EUR/USD characteristically struggles with follow-through. Buyers have shown tendencies to step in whenever the pair approaches oversold levels and vice versa when it reaches overbought points. The last time the pair trading in a sustained trend, with some momentum behind it, was about two years ago.
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For this reason, long positions at this stage do not appear favorable from a risk to reward perspective, despite the clear downtrend.
The week ahead will start slow but there are several economic releases late in the week that stand to move the pair. The highlights include US CPI on Thursday and retail sales on Friday. Fed Chair Powell will be testifying on Tuesday and Wednesday.
The Federal Reserve has been in ‘wait and see’ mode, and if Powell reiterates the same, the market impact will likely be minimal. The futures markets are suggesting the next rate cut won’t be until at least the summer. If Powell suggests differently this week, however, the dollar could come under pressure.
Technical Analysis
EUR/USD trades near support at 1.0940 which is considered significant. On a weekly chart, the pair has not closed below the level since May 2017.
At the same time, the US dollar index (DXY) has rallied above a major horizontal level at 98.37. This could be a bullish break, and the level provides a good gauge for direction in the week ahead.
In the event of a rally attempt, two levels of interest to the upside include 1.0991 followed by 1.1025. The former held the pair higher in November and is considered a major level due to its proximity to the psychological 1.100 handle.
If the pair drops below 1.0940, a retest of the 2018 low might be in the cards.
Bottom Line
- EUR/USD extended losses last week to trade at a fresh four-month low.
- Technical indicators have entered oversold territory on a 4-hour chart which has historically attracted buyers.
- Most of this week’s market-moving economic data are concentrated towards the end of the week.