EUR/USD Forecast: Bullish momentum weakens after Christmas break

EUR/USD trades in a narrow channel above 1.1750 on Monday.
The technical outlook highlights a loss of bullish momentum.
The economic calendar will not offer any high-impact data releases.

Eren Sengezer FXStreet

EUR/USD stays in a consolidation phase and moves sideways above 1.1750 early Monday after registering marginal losses on Friday. In the absence of fundamental drivers and key macroeconomic data releases, the pair could have a difficult time finding direction heading into the New Year holiday.

Following the Christmas break, the US Dollar (USD) held its ground but failed to gather recovery momentum as trading volumes remained thin.

On Monday, the Federal Reserve Bank of Dallas' Texas Manufacturing Survey and November Pending Home Sales data will be featured in the US economic calendar, which are likely to be ignored by market participants. On Tuesday, the minutes of the Federal Reserve's December policy meeting will be scrutinized by investors but the actual market impact could be hard to see until trading conditions normalize later this week or early next week.

EUR/USD Technical Analysis:

The 20-period Simple Moving Average (SMA) climbs above the 50-, 100-, and 200-period ones, signaling bullish alignment. Price holds over the 50-, 100-, and 200-period SMAs but remains capped by the 20-period SMA at 1.1782.

The Relative Strength Index (RSI) prints 49.8, neutral as momentum cools. The lower limit of the ascending regression channel and the 50-period SMA align as the initial support level at 1.1750. Measured from the 1.1501 low to the 1.1800 high, the 23.6% retracement at 1.1730 could be seen as the next support level, followed by the 100-SMA at 1.1715 and the 38.2% retracement at 1.1685.

On the upside, 1.1780 (20-period SMA) could act as an interim resistance level before 1.1800 (static level, mid-point of the ascending channel) and 1.1855 (upper limit of the ascending channel).

(The technical analysis of this story was written with the help of an AI tool)

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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