**EUR/USD and FTSE 100 Forecast: Two Trades to Watch**
*Based on the original article by Matt Weller, FOREX.com Senior Global Market Strategist*
Published on Forex.com
The first full trading week of January brought with it heightened volatility and significant movement across global markets, largely driven by economic data and shifting expectations around monetary policy. Among the most closely watched currency pairs and indices were the EUR/USD and the UK’s FTSE 100. As traders position themselves for a potentially pivotal year in financial markets, these two instruments offer especially noteworthy setups to monitor.
Here is a detailed breakdown of the current technical outlook and trading considerations for both the EUR/USD and the FTSE 100.
## Macroeconomic Backdrop
To understand the current trajectory of EUR/USD and FTSE 100, it is crucial to contextualize their movement against recent economic events.
### Key Themes Influencing Price Action:
– **Mixed U.S. Economic Data**:
– Investors were initially optimistic that cooling inflation would prompt the Federal Reserve to begin cutting interest rates earlier this year.
– However, the U.S. December Non-Farm Payrolls (NFP) report showed surprising resilience in the labor market, shifting expectations.
– The stronger-than-expected jobs data led markets to adopt a more cautious stance on early 2024 rate cuts.
– **Central Bank Divergence**:
– The European Central Bank (ECB) has maintained a more dovish tone, indicating economic challenges within the Eurozone.
– Meanwhile, the Federal Reserve is walking a tightrope between controlling inflation and not stifling economic growth.
– As a result, currency markets have started to reprice expectations, particularly for EUR/USD.
– **UK Economic Uncertainty**:
– The UK economy remains caught between slower growth and sticky inflation.
– Bank of England faces challenges similar to the Fed and ECB, although traders perceive that the British central bank may delay easing compared to others.
– The FTSE 100, with heavy exposure to global commodities and multinational conglomerates, is influenced by broader global sentiment.
These macroeconomic drivers serve as a foundation for the individual analysis of each instrument.
## EUR/USD Analysis: Pullback Creates Potential Opportunity
The EUR/USD pair has shown continued sensitivity to economic data and shifts in yields on both sides of the Atlantic. After rallying in late 2023 on expectations of eventual Federal Reserve rate cuts, the pair saw a sharp decline in early January, wiping out some of those gains.
### Technical Overview:
– **Recent Performance**:
– EUR/USD has pulled back from the 1.1130 level reached in December.
– The pair tested the 1.0870 region in the first week of January 2024 but found temporary support.
– **Trend Characteristics**:
– Despite the recent decline, the pair remains above its 200-day moving average, suggesting the longer-term uptrend is still intact.
– Bullish traders may interpret the current retracement as a buying opportunity.
– **Key Support and Resistance Levels**:
– Immediate support is located around the 1.0850 level, which acted as a springboard in the early January recovery attempt.
– The next stronger support zone lies near the 1.0720 to 1.0740 area, which aligns with previous swing lows and the rising trend line from October.
– On the upside, resistance can be seen at 1.0960, then progressively at 1.1020 and 1.1130.
– **Fibonacci Analysis**:
– The pullback has already retraced more than 38.2% of the November-to-December rally.
– Traders may watch the 50% retracement level (~1.0870), which has already responded with a bounce, and the 61.8% level (~1.0820) as critical inflection zones.
– **Momentum
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