EUR/USD Forecast: Bullish extension to 1.2000/YTD tops still on the cards

• EUR/USD shot to fresh two-month tops on Thursday amid sustained USD selling.
• COVID-19 vaccine optimism continued undermining the safe-haven greenback.
• Disappointing German macro data capped gains amid holiday-thinned liquidity.

The EUR/USD pair had good two-way price moves on Thursday and finally settled in the red, snapping two consecutive days of winning streak. The US dollar prolonged its recent downward trajectory led by the optimism over coronavirus vaccines and was further pressured by Wednesday's rather unimpressive US macro data. The unexpected jump in the US Initial Weekly Jobless Claims added to market worries about the economic fallout from new COVID-19 restrictions and raised expectation for more fiscal stimulus from the incoming Biden administration. This, in turn, was seen as one of the key factors that pushed the pair to fresh two-month tops.

The pair, however, started losing momentum following the release of German GFK Consumer Confidence Index, which dropped from a revised -3.2 in the previous month to -6.7 for the month of December. The pair retreated over 55 pips from the daily swing high level of 1.1941, albeit lacked any strong follow-through. Given that the US markets were closed on the back of the Thanksgiving holiday, relatively thin liquidity conditions held investors from placing any aggressive bets. The pair showed some resilience below the 1.1900 mark, instead attracted some dip-buying and gained some follow-through traction during the Asian session on Friday.

Market participants now look ahead to the release of Eurozone Consumer Confidence data for November. This, along with a speech from the German Bundesbank President Jens Weidmann, will influence the shared currency. On the other hand, the USD will continue to be driven by the broader market risk sentiment, which might further assist traders to grab some meaningful opportunities on the last day of the week.

Short-term technical outlook

From a technical perspective, the formation of an indecisive candle on Thursday could be seen as the first sign of possible bullish exhaustion. That said, the emergence of some dip-buying on Thursday and the subsequent move up favours bullish traders. The positive outlook is further reinforced by bullish technical indicators on the daily chart, which are still far from being in the overbought territory. Hence, some follow-through strength towards the key 1.2000 psychological mark, en-route YTD tops near the 1.2010 region, looks a distinct possibility. Above the mentioned levels, the pair seems all set to extend the momentum and aim to reclaim the 1.2100 mark for the first time since April 2018.

On the flip side, weakness below the 1.1900 mark is likely to find some support near the 1.1880 region and any subsequent dip might now be seen as a buying opportunity. This, in turn, should help limit the downside near the 1.1855-50 region. A convincing breakthrough might prompt some technical selling and accelerate the fall towards the 1.1800 mark. The corrective slide could further get extended towards the 1.1750-45 support zone, which if broken decisively might negate any near-term bullish bias and turn the pair vulnerable to weaken further below the 1.1700 round-figure mark.