EUR/USD Forecast: Are the doves about to cry? Sell the rally?

EUR/USD hit a one-week high at 1.1402, up from trading in a tight range. The tension towards the Fed limited movements, but it seems that markets are now awaiting a dovish hike. The Fed is set to raise rates on Wednesday, but will likely downgrade its forecasts for rate increases in 2019.

Signs of a slowdown hit US shores after striking China and Europe earlier. Some Fed members have become more dovish. This caused markets to doubt the Fed will raise rates even once next year.

On the other hand, Fed Chair Powell remains upbeat about the economy and quite a few top-tier indicators such as wages, inflation, and most recent retail sales; all look upbeat.

Will the doves eventually cry?

In the old continent, Italy readied its budget and so far received only an acknowledgment from the Brussels. The European Commission said "all options are on the table." which is not that encouraging for the euro zone's third-largest economy. 

In the No. 1 economy, Germany, we learned that IFO's Business Climate fell below expectations to 101 points, adding to signs that the Q3 contraction was not a one-off. 

All in all, it is hard to justify this recovery. In the bigger scheme of things, the range is not that extraordinary, but a one-week high on the basis of speculation and amid negative signals. 

To top it off, US Housing Starts beat with 1.26 million units annualized in November and Building Permits jumped to 1.33 million annualized, significantly higher than early projections.

EUR/USD Technical Analysis 

EUR/USD is now trading below the highs but still above the 50 and 200 Simple Moving Averages. On the other hand, Momentum remains muted.

1.1380 capped the pair around the turn of the month and is a pivotal point in the range. 1.1402 is the fresh high. 1.1424 capped euro/dollar last week, and 1.1445 was another high, already back in November.

1.1360 was the initial resistance line for the pair earlier in the day, and it coincides with the 200 Simple Moving Average. 1.1330 was a swing low last week, and it is followed by the double-bottoms of 1.1305 and the critical 1.1270.