EUR/USD Forecast: Bull retain control in a slow start to the week

EUR/USD Current Price: 1.0924

• Financial markets continue to drop the US Dollar, hoping the tightening cycle is over.
• Germany’s economy will remain on the back foot throughout the last quarter of the year.
• EUR/USD lacks momentum, but the risk remains skewed to the upside.

The EUR/USD pair traded as high as 1.0939 on Monday as market participants cheered the end of monetary tightening. United States (US) inflation and employment-related data published in the past few weeks indicated that price pressures continued receding in October while the labor market loosened. The US Dollar edged lower against all its major rivals throughout the Asian session as stock markets advanced.  

Government bonds declined in Asia, which helped Treasury yields bounce back from the two-month lows posted last Friday. Still, the 10-year Treasury note offers 4.47%, up modest 3 basis points (bps), far from the roughly 5% it yielded mid-October.

The German Bundesbank posted its monthly report, showing the central bank does not expect an economic recovery at the beginning of 2024, with a slight decline anticipated for the last quarter of 2023. The bank also noted the local economy continues to experience difficult economic conditions.

Data-wise, Germany released the October Producer Price Index, down 0.1% MoM as expected. The annual reading printed at -11%, also meeting the market’s forecast. The US calendar has nothing relevant to offer on Monday, but the Federal Open Market Committee (FOMC) will unveil the Minutes of its latest meeting on Tuesday.

EUR/USD short-term technical outlook

The EUR/USD pair is poised to extend its advance according to the daily chart. The pair is up for a second consecutive day, extending gains above all its moving averages. The 20 Simple Moving Average heads firmly north, far below the current level, also below the 100 and 200 SMAs, but still reflecting persistent buying interest. Technical indicators, in the meantime, pick up with uneven strength within overbought levels, skewing the risk to the upside.

Near term, EUR/USD lacks momentum. The 4-hour chart shows the pair develops above all its moving averages, with the 20 SMA partially losing its upward strength, although still far above the longer ones, limiting the downside. At the same time, the Momentum indicator turned directionless within positive levels, while the Relative Strength Index (RSI) indicator eases from extreme overbought readings. The chances of a downward move are limited, while a test of 1.0960 is more likely in the upcoming sessions.

Support levels: 1.0890 1.0840 1.0800 

Resistance levels: 1.0960 1.1005 1.1045

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