EUR/USD Forecast: Optimism weighs on the USD as ECB fails to impress
|EUR/USD Current price: 1.0917
- The European Central Bank kept rates on hold as widely anticipated.
- The US Dollar extends its Fed-inspired slump as optimism reigns.
- EUR/USD is bullish in the near term, profit taking to kick-in later in the day.
The EUR/USD pair kept advancing early on Thursday, fueled by the broad US Dollar sell-off triggered by the United States (US) Federal Reserve (Fed) monetary policy decision. As anticipated, the US central bank left its benchmark rate unchanged for a third consecutive meeting at 5.25% - 5.50% but changed the tone in the Summary of Economic Projections (SEP). Policymakers now anticipate three rate cuts for 2024, from two in the September SEP.
Additionally, Chairman Jerome Powell noted that rate cuts were put on the table in the meeting and that they would not wait for inflation to reach 2% to start trimming record rates. Overall, the announcement painted a more optimistic view than anticipated.
EUR/USD maintained its positive momentum ahead of the European Central Bank (ECB) monetary policy announcement. As expected, the ECB left rates on hold, with the decision having no impact on the pair.
Meanwhile the US reported November Retail Sales were up 0.3%, while Initial Jobless Claims for the week ended December 8 were up by 202K, beating the market’s expectations. The US Dollar ticked higher with the figures but remained on the back foot as ECB President Christine Lagarde kick-started the press conference.
EUR/USD short-term technical outlook
The EUR/USD pair holds on to gains above the 1.0900 threshold, and the daily chart shows it has recovered above its 20 Simple Moving Average (SMA), which slowly gains upward traction above the longer ones. Technical indicators, in the meantime, have extended their advances, although the Momentum indicator remains below its 100 level, while the Relative Strength Index (RSI) indicator advances with moderate strength at around 60.
The near-term picture is bullish despite EUR/USD being overbought. The 4-hour chart shows technical indicators maintaining moderate bullish slopes within extreme levels and the pair developing above all its moving averages. As long as optimism prevails, the risk will skew to the upside, with profit taking likely to take place later in the day and ahead of the weekend.
Support levels: 1.0940 1.0985 1.1020
Resistance levels: 1.0830 1.0860 1.0900
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