EUR/USD Forecast: Bulls hold ground as central banks’ dust settles

Valeria Bednarik FXStreet

EUR/USD Current price: 1.0918

The German IFO survey showed Business Climate worsened in December.
ECB and Fed policymakers working on the “higher for longer” case.
EUR/USD holds above 1.0900 with bulls on pause but retaining control.

The EUR/USD pair hovers in a tight range around the 1.0900 figure on Monday, with the US Dollar trading mixed across the board as investors try to digest the latest central banks’ announcements. The Federal Reserve (Fed) and the European Central Bank (ECB) decided to keep interest rates on hold in their last meetings of 2023, holding their fire for the third consecutive meeting, somehow confirming the end of monetary tightening without explicitly saying so.

The outlooks and the accompanying statements, however, differed, as risk to inflation and growth seem higher in the Eurozone. Still, market players welcomed the decisions with increased risk appetite, maintaining the USD on the back foot despite the United States (US) encouraging macroeconomic data.

As the new week starts, fresh comments from policymakers hit the wires. On the one hand, ECB Governing Council member Peter Kazimir said that the mistake of premature easing would be more significant than the risk of staying tight for too long. On the other hand, Fed Bank of Cleveland President Loretta Mester declared that the next phase is about how long they need monetary policy to remain restrictive, not when to cut rates.

Data-wise, Germany published the December IFO survey on Business Climate, which resulted in worse than anticipated. The headline reading contracted from 87.2 in November to 86.4, while Expectations shrank to 84.3. Finally, the assessment of the current situation printed at 88.5, down from 89.4 in the previous month. The US macroeconomic calendar has nothing relevant to offer today.

EUR/USD short-term technical outlook

The EUR/USD pair posts modest gains, holding at the lower end of Friday’s range. The daily chart shows it holds above the 23.6% Fibonacci retracement of the 1.0447/1.1016 rally at 1.0883. At the same time, the pair holds above all its moving averages, with the 20 Simple Moving Average (SMA) directionless above the longer ones and a few pips below the Fibonacci support level. Finally, the Momentum indicator heads marginally lower below its 100 level, while the Relative Strength Index (RSI) indicator ticks north at around 56, failing to provide clear directional clues.

The 4-hour chart offers a neutral-to-bullish stance. EUR/USD is meeting buyers around a bullish 20 SMA, currently at around 1.0905. Technical indicators, however, lack directional strength but remain within positive levels, suggesting bulls hold the grip. The case for a downward extension should increase if the pair slides through the aforementioned Fibonacci support.

Support levels: 1.0905 1.0880 1.0845

Resistance levels: 1.10930 1.0965 1.1000

View Live Chart for EUR/USD

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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