EUR/USD Forecast: Bears strengthen ahead of first-tier clues

Valeria Bednarik FXStreet

EUR/USD Current price: 1.0868

The European Central Bank decision and critical US data keep investors cautious.
Wall Street closed at record highs amid mounting hopes of soon-to-come rate cuts.
EUR/USD turned bearish in the near term, still needs to pierce 1.0845.

The EUR/USD pair trades at the lower end of its weekly range as the US Dollar gathers strength mid-European morning. The USD shed some ground throughout the first half of the day as a better market mood backed demand for high-yielding currencies. The main driver was Wall Street, as United States (US) indexes closed at record highs. Investors are optimistic about cooling inflation to soon allowing the Federal Reserve (Fed) to cut interest rates, while solid earnings reports confirm the economic resilience.

The US Dollar's strength in a risk-on scenario is no coincidence. The country proved to be leading the economic comeback, and the Fed is likely to lead the monetary policy shift by being the first to cut rates.

A certain caution, however, persists as market participants await first-tier events scheduled for later in the week. On the one hand, the European Central Bank (ECB) will announce its decision on monetary policy next Thursday. On the other hand, the US will release the preliminary estimate of the Q4 Gross Domestic Product (GDP) and the December Personal Consumption Expenditures (PCE), among other relevant figures.

Meanwhile, the ECB released the January Bank Lending Survey (BLS), which showed a tightening of credit standards amid risk perceptions. "Banks again reported net decreases in demand from firms for loans or drawing of credit lines, demand for housing loans and demand for consumer credit and other lending to households," according to the official report. Later in the day, the Eurozone will publish January Consumer Confidence, foreseen at -14.3 from -15 in the previous month. As for the US, the country will unveil the January Richmond Fed Manufacturing Index, expected at -7, improving from -11 in December.

EUR/USD short-term technical outlook

The EUR/USD pair is down for a second consecutive day, with the risk skewed to the downside. The pair develops below a bearish 20 Simple Moving Average (SMA) in the daily chart, while a flat 200 SMA keeps providing dynamic support at around 1.0845. Meanwhile, the Momentum indicator stabilized below its 100 line, while the Relative Strength Index (RSI) indicator gains bearish traction at around 43, a fresh weekly low. Overall, technical readings suggest bears are becoming stronger.

The bearish case is firmer in the near term. The 4-hour chart shows EUR/USD extended its decline below its 20 SMA, the latter at around 1.0890, while the longer moving averages gain downward traction above the shorter one. Technical indicators aim south, but the Momentum indicator remains stuck within neutral levels, falling short of supporting an imminent slide. The RSI, on the contrary, stands at fresh weekly lows within negative levels, anticipating a continued slide, particularly if the pair finally breaks through the 1.0845 support level.

Support levels: 1.0845 1.0800 1.0760

Resistance levels: 1.0890 1.0935 1.0980

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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