Title: EUR/USD Technical Analysis: The Greenback Weakens Ahead of Crucial U.S. Economic Data
Original Author: James West, InvestingLive.com
As traders await significant economic data out of the United States, the U.S. dollar remains under pressure against the euro. The EUR/USD currency pair continues to gain strength, supported by weak performance in the greenback and expectations surrounding key upcoming data releases. The forex market is steadily preparing for potential volatility as investors try to measure the Federal Reserve’s next moves.
In this updated technical analysis of EUR/USD, we will break down the core drivers of the pair’s performance, identify key support and resistance levels, and evaluate the broader macroeconomic environment affecting the dollar and euro. This article expands on observations from James West of InvestingLive.com.
Macroeconomic Overview
The forex market is reacting to several key macroeconomic factors as the U.S. dollar remains under downward pressure. The EUR/USD pair has seen a slight uplift in recent trading sessions amid anticipation around important U.S. economic reports.
Key contributing factors include:
– Expectations of weaker U.S. employment and retail data, which may prompt the Federal Reserve to push back its timeline for future rate hikes or consider easing monetary policy.
– Reduced inflationary pressure in the U.S., slowing down momentum for further policy tightening.
– A broadly positive sentiment in European markets, encouraging support for the euro.
– Rebalancing of currency exposures by institutional traders ahead of year-end, contributing to fluctuations in EUR/USD.
Investor sentiment is notably cautious. While U.S. growth has displayed resilience, upcoming data may suggest slowing momentum, particularly in consumer spending and payroll numbers. These indicators are closely watched by the Federal Reserve and could impact both short-term and long-term interest rate decisions.
Key Data Releases in Focus
Market participants are eyeing several upcoming reports from the United States that could shift sentiment and introduce substantial volatility in forex markets:
1. U.S. Non-Farm Payrolls (NFP):
– One of the most impactful economic indicators for the U.S. dollar.
– A stronger-than-expected NFP figure could boost the dollar by increasing the probability of future rate hikes.
– A weak jobs report would likely pressure the dollar further and support EUR/USD upside.
2. Consumer Price Index (CPI):
– A key metric for inflation and a pivotal factor for Fed policy.
– Lower inflation readings would confirm the effectiveness of previous rate hikes, potentially allowing the Fed to pause.
– A higher CPI print could indicate persistent inflation risks, giving the dollar support.
3. Retail Sales Data:
– Reveals the strength of consumer spending, which makes up a significant portion of U.S. GDP.
– A weaker-than-expected number could contribute to bearish dollar sentiment and benefit the euro.
Technical Analysis: EUR/USD Price Action
From a technical perspective, the EUR/USD pair is holding onto recent gains but faces critical levels before any sustained bullish breakout.
Support and Resistance Levels:
– Immediate resistance: 1.0900
– Next key resistance: 1.0950
– Psychological resistance: 1.1000
– Initial support: 1.0800
– Stronger support: 1.0765
– Extended floor: 1.0700
Price movement is narrowing between these key levels, creating a consolidative tone on short-term charts. The currency pair could break out in either direction depending on the upcoming fundamental data.
Trend Indicators:
– The 50-day simple moving average (SMA) is trending slightly higher and currently sits close to the 1.0800 level, reinforcing support.
– The 200-day SMA is hovering near 1.0900, acting as dynamic resistance that will be significant if EUR/USD attempts to surpass this region.
– EUR/USD remains above a short-term ascending trendline that began in early November, keeping the current technical tone mildly bullish.
Momentum Indicators:
– Relative Strength Index (RSI)
Read more on EUR/USD trading.