Original article by Matt Weller, sourced from City Index.
Title: EUR/USD Struggles as Breakout Stalls Near Resistance – What’s Next for the Euro?
The EUR/USD pair has seen a sudden uptick in recent trading activity, but its momentum shows signs of weakness as it encounters a critical technical ceiling. After the pair’s November surge, Euro bulls are facing renewed uncertainty amid resistance near the 1.1000 psychological level. This raises the question: Is the rally simply pausing for a reset, or is a larger reversal in play?
This article analyzes the EUR/USD’s short-term outlook, explores recent price action, key technical setups, fundamental developments driving price behavior, and highlights levels to watch in the coming days.
Recent Surge in EUR/USD – A Recap
Over the past month, the euro has gained ground against the US dollar thanks to a combination of factors:
– Softer U.S. economic data prompting investor expectations of more dovish actions by the Federal Reserve.
– Euro area activity that, while subdued, has stabilized somewhat compared to dire expectations earlier in Q3.
– A significant shift in interest rate expectations, particularly regarding the Fed’s future policy path.
– Technical factors, including a breakout above prior resistance levels that triggered stop-loss orders and attracted new long positions.
The EUR/USD climbed through several resistance levels in late November, culminating in a breakout above 1.0900. However, as the pair tested the psychological 1.1000 mark, bullish momentum began to fade, suggesting buying exhaustion.
Key Technical Analysis: EUR/USD at a Crossroads
The following elements stand out from a technical perspective:
– Daily Chart Resistance: The rally has paused near a key confluence zone around 1.1000–1.1015, which includes:
– A horizontal resistance from the August high.
– The 61.8% Fibonacci retracement of the July to October decline.
– Previous swing highs that have acted as critical reaction points.
– Rising RSI Near Overbought: The Relative Strength Index (RSI) approached the overbought zone (>70), suggesting that buying pressure may have peaked in the short term and a consolidation or pullback could be due.
– Support Levels Below: If EUR/USD begins to pull back, attention will shift to the following supports:
– 1.0930: A recent breakout level that could turn into support.
– 1.0875: Minor horizontal support from consolidated ranges in late November.
– 1.0725–1.0750: Stronger support at the 200-day moving average and former resistance broken in early November.
– Trend Structure: Despite the recent stalling near resistance, the broader structure favors the bulls as long as the pair remains above its 200-day moving average and maintains higher highs and higher lows on the daily chart.
Short-Term EUR/USD Trading Scenarios
With the pair hesitating near key resistance, traders should consider multiple possible scenarios in the short term:
1. Bullish Continuation Scenario:
– If EUR/USD breaks convincingly above the psychological 1.1000 barrier on increased volume, bullish momentum may resume.
– In this case, the next upside targets include:
– 1.1065: A pivot zone and prior swing high from August.
– 1.1130: The 78.6% retracement of the prior downtrend and a former resistance level.
– Potential extension to 1.1200 if dollar weakness persists into January.
2. Consolidation Scenario:
– EUR/USD may chop sideways between 1.0930 and 1.1000 as market participants reassess positions heading into the Fed and ECB meetings later this month.
– Volatility may decline temporarily, especially if macroeconomic data is light over the week.
3. Bearish Reversal Scenario:
– A failure to close above 1.1000 followed by a move below
Read more on EUR/USD trading.