EUR/USD Forecast: Challenging critical upside confluence as the mood improves

EUR/USD is holding its ground above 1.1400 as a new week begins. There are several factors in play.

The US Dollar remains on the back foot after a few dovish comments from Fed officials on Friday. Vice-Chair Richard Clarida and regional Fed Presidents Harker and Kaplan all emphasized the slowdown in global growth and saw no rush in raising interest rates. While a hike in December is still on the cards, the odds for three moves in 2019 are now lower. New York Fed President John Williams will speak later on.

The pair has support also from Brexit. According to the British press, only 42 Conservative Members of Parliament sent a letter asking for a leadership challenge against PM Theresa May. The threshold to trigger a contest is 48. A failure to hit 48 or 15% of MP's would be an early failure for the Brexit rebels.

Leaders of the European Union meet on Sunday to announce the Brexit deal. In addition, there are reports that Chief EU Negotiator Michel Barnier will offer the UK an extended transition period, running through 2022 against end-2020 at the moment. A more extended period of certainty is favored by businesses. The Euro has been reacting to developments around Brexit.

Back in the old continent, Italy and the European Commission remain at loggerheads around the budget. The euro zone's third-largest economy has the second-highest debt-to-GDP ratio. Rome wants to spend more to boost growth while Brussels insists on cuts to curb the debt. The EC will respond on Wednesday and may initiate disciplinary action. At the moment, the issue is at the backburner. 

EUR/USD Technical Analysis

EUR/USD is capped by 1.1430 which is the confluence of the 200 Simple Moving Average on the four-hour chart and today's high. The pair has been trading in a downtrend channel since early October, and downtrend resistance is just above 1.1430 at the time of writing. Break or bounce? We will know soon enough. The confluence of these indicators makes it critical.

Above 1.1430 we find 1.1460 that held EUR/USD down in early November. 1.1500 was the peak a few days afterward. Higher, 1.1550 and 1.1620 were highs on the way down.

Looking down, 1.1395 was the low point of the day and also provided support in early November. 1.1350 was a swing low around that time and later held the price down. 1.1300 is the all-important double-bottom, and it is followed by 1.1260 and 1.1215, which is the lowest level since June 2017.