EUR/USD Forecast: Additional recovery gains likely if 1.1320 support holds

EUR/USD gathered bullish momentum late Wednesday and advanced to its highest level in nearly a week above 1.1340 as the risk-positive market environment made it difficult for the greenback to find demand. The near-term technical outlook points to a bullish shift but the support at 1.1320 needs to hold to keep buyers interested.

Reports suggesting that the coronavirus Omicron variant is causing fewer hospitalizations than the Delta variant allowed the market mood to remain upbeat on Wednesday. With major equity indexes in the US posting decisive gains, the US Dollar Index (DXY), which tracks the dollar's performance against a basket of six major currencies, dropped toward the lower limit of its three-week-old trading range at 96.00.

Later in the session, the Personal Consumption Expenditures (PCE) Price Index data will be featured in the US economic docket. Investors expect Core PCE inflation to rise to 4.5% on a yearly basis in November from 4.1% in October. A stronger-than-expected print could revive inflation fears and cause the risk rally to lose steam. On the flip side, a soft inflation reading is likely to limit a potential recovery in the DXY.

November New Home Sales and Durable Goods orders data from the US will also be looked upon for fresh impetus alongside the weekly Initial Jobless Claims report. Ahead of the Christmas holiday, however, the risk perception is likely to remain the primary driver of the greenback's market valuation.

EUR/USD Technical Analysis

EUR/USD is trading above the 200-period SMA on the four-hour chart for the first time since late October. Additionally, the Relative Strength Index (RSI) indicator on the same chart is staying below 70, suggesting that the pair has more room on the upside before it becomes technically overbought.

1.1360 (post-ECB high) aligns as the first technical resistance before 1.1380 (Nov. 30 high) and 1.1400 (psychological level).

On the downside, additional corrective losses toward 1.1300 (psychological level, 100-period SMA) and 1.1280 (50-period SMA) could be witnessed if a four-hour candle closes below 1.1320 (200-period SMA).