EUR/USD Forecast: Scope for further gains while above 1.0970
|- The US Dollar remains under pressure as Treasury yields dropped to fresh lows.
- Spain and Germany will report consumer inflation figures on Wednesday.
- The EUR/USD hit levels above 1.1000 but then pulled back, generating doubts about further gains in the short term.
The EUR/USD reached levels above 1.1000 for the first time since mid-August and then pulled back moderately. The trend remains upward, and the US Dollar remains under pressure. The focus turns to European inflation figures and Fed talk.
The German GfK Consumer Confidence Survey showed a modest improvement in the main index from -28.2 to -27.8. Eurostat will release the sentiment survey for November on Wednesdays.
Eurozone Central Bank (ECB) officials are far from declaring victory against inflation. However, markets are pricing in rate cuts for the second quarter of next year. On Wednesday, Spain and Germany will report November consumer inflation, which will be critical. The annual Consumer Price Index (CPI) in Spain is expected to decline from 3.5% in October to 3.4% in November, and in Germany from 3.8% to 3.5%. Even with the slowdown, the CPI would remain above the target, and economists warned about a possible rebound in December.
The sharp decline of the US Dollar pushed the EUR/USD pair higher. The Greenback was already under pressure, and comments from Federal Reserve officials weighed further as US Treasury yields hit fresh lows. Regarding economic data, CB Consumer Confidence rose to 102 in November, but after a downward revision to October figures from 102.6 to 99.1. On Wednesday, the US will release a new estimate of Q3 GDP data, and the Fed will release the Beige Book.
EUR/USD short-term technical outlook
The EUR/USD rose for the fourth consecutive day but then trimmed some of its gains. The trend remains upward, with prices above key Simple Moving Averages (SMA). However, the Relative Strength Index (RSI) is above 70, and after a four-day rally, some pause could be expected.
On the 4-hour chart, the bias is also clearly to the upside, and some technical indicators show extreme overbought readings. Although the price is above the 20-SMA, with Momentum still strong. As long as it remains above 1.0970, there is potential for further gains. The resistance to break is the 1.1010 area; above that, the next target stands at 1.1040. On the downside, immediate support is at 1.0970, and below thatt at 1.0940. A drop below 1.0940 would weaken the short-term outlook for the Euro.
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