EUR/USD Forecast: A dark winter begins for the USD

EUR/USD trades in the upper half of the 1.1400 handle, close to the six-week highs it set on Thursday. The first day of winter in the northern hemisphere is not that gloomy for the world's most popular currency pair, but things are not looking so great for global stocks and the USD, which remain on the back foot. 

The Fed's hike and on Wednesday continues echoing in markets. On the one hand, the world's most powerful central bank lowered its forecast for rate increases in 2019. However, markets may have wanted a bit more, especially on the ongoing reduction of the Fed's balance sheet, which remains on "auto-pilot" as Chair Jerome Powell stated. 

The result is falling stocks but a weaker US Dollar, developments that did not go hand in hand until recently. 

The greenback also suffers from a looming government shutdown in the US. Republicans and Democrats had already agreed on a stop-gap measure to postpone the closure of non-essential services until February. But then the White House chimed in. President Donald Trump insisted on funding for a border wall on the US-Mexican border. The stand-off is set to culminate later in the day, and if a solution is not reached, it may weigh on sentiment.

The last day of the pre-holiday week also features a big bulk of US data. The final GDP read for Q3 is projected to confirm the upbeat growth rate of 3.5% annualized. The components of growth will be closely watched. A significant contribution by inventories is not the kind of expansion markets want to see as inventories can be depleted in the following quarter.

Durable Goods Orders for November will provide more up-to-date insight into the economy. Headline orders are forecast to rise after a significant fall in October. More importantly, Core Durable Goods Orders carry expectations for another modest increase. 

See: US Durable Goods and GDP Preview: Spending returns to trend, GDP steady

Last but not least, the Core PCE Price Index for November is due. This is the Fed's preferred measure, is released today, earlier than usual. It is expected to rise, following the increase in the parallel Core CPI. Prices are growing at a healthy level, but there is no overheating that would urge the Fed to accelerate its rate hikes.

With so many things going on in the US, it is easy to forget the old continent. Eurostat's Consumer Confidence is the only noteworthy indicator on the calendar. However, the common currency remains supported by the resolution on Italy. The European Commission decided not to punish the nation earlier this week. The news continues providing relief for the euro zone's third-largest economy and for the Euro.

EUR/USD Technical Analysis

EUR/USD enjoys upbeat Momentum as demonstrated on the four-hour chart. The Relative Strength Index (RSI) is above 50 but below overbought conditions (70), favorable as well. The 50 Simple Moving Average crossed the 200 one to the upside, and this is another bullish sign.

All in all, the bulls are in control.

1.1485 was the swing high seen on Thursday and serves as an immediate cap. 1.1500 is not only a round number but also the November peak. 1.1550 was last seen in October, serving as a lower high on the way down. 1.1625 is next.

1.1440 was a high point earlier this week and also limited the pair earlier this month. 1.1405 limited the EUR/USD's advance twice in December. 1.1360 was the low point of the week. Further below, 1.1305 and 1.1270 await. 

More: EUR/USD set for a Santa Rally – Confluence Detector