EUR/USD Forecast: Consolidates in quiet markets, bullish potential intact

• EUR/USD bulls took a breather near 32-month tops amid holiday-thinned liquidity conditions.
• The prevalent bearish sentiment surrounding the USD should help limit any meaningful slide.
• Any dip towards the 1.2235 resistance breakpoint could now be seen as a buying opportunity.

The EUR/USD pair was seen oscillating in a narrow trading band through the first half of the European session and consolidated its recent strong gains to the highest level since April 2018. In the absence of any fresh fundamental catalyst, bulls took a brief pause and refrained from placing fresh bets amid year-end thin trading volumes. That said, sustained selling bias around the US dollar should help limit the downside, rather supports prospects for a further near-term appreciating move.

Investors continued to dump the USD on hopes for a stronger global economic recovery in 2021 and expectations that the Fed will keep interest rates lower for a longer period. Apart from this, the likelihood of additional US financial aid package and regulatory approval of AstraZeneca/Oxford COVID-19 vaccine remained supportive of the underlying bullish tone in the equity markets. This was seen as another factor that further undermined the greenback's relative safe-haven status.

There isn't any major market-moving economic data due for release from the Eurozone. This, in turn, leaves the pair at the mercy of the USD price dynamics. The US economic docket highlights the only release of the usual Initial Weekly Jobless Claims. The data is unlikely to provide any meaningful impetus. However, the broader market risk sentiment might continue to influence the USD price dynamics and assist investors to grab some opportunities on the last trading day of the year.

Short-term technical outlook

From a technical perspective, the pair this week confirmed a fresh bullish breakout through a symmetrical triangle and seems poised to prolong its recent upward trajectory. However, RSI on the daily chart has moved on the verge of breaking into the overbought territory and warrants some caution for aggressive bullish traders. This makes it prudent to wait for a modest pullback or some near-term consolidation before the next leg up. The next relevant target on the upside is pegged near the 1.2340 level, above which the pair could aim to reclaim the 1.2400 mark in the near-term.

On the flip side, any meaningful pullback might now be seen as a buying opportunity and remain limited near the triangle resistance breakpoint, currently near the 1.2230 region. The mentioned support coincides with another ascending trend-line support, which if broken decisively might prompt some technical selling. The pair might then turn vulnerable to break below the 1.2200 mark and accelerate the corrective slide further towards the 1.2130-25 congestion zone, tested earlier this week.