EUR/USD Forecast: Defying 3 downers and rising, more gains to come?

• EUR/USD is moving up nicely in the last full week of the year.
• The pair defies three factors that should have brought it down.
• The technical picture is improving for the pair.

EUR/USD is trading in the mid 1.1300s, up on the day. There are no reasons for the pair to rise, only to fall. When something cannot fall on bad news, it is a great sign of strength. It implies a significant upside potential when good news comes.

Why should the euro/dollar fall?

1) Weak data

The final euro-zone inflation figures for November disappointed with a surprise downgrade of the headline number from 2% to 1.9%. The currency bloc's trade balance surplus continues shrinking, with 12.5 billion in October against 14.2 billion expected and 13 billion in September.

2) Italy

The Italian government reached an agreement on a new budget with a lower deficit. But will it pass muster in Brussels? The European Commission did not immediately respond and will likely ask for more adjustments. Italy's economy shrank in Q3. With a smaller GDP, the EC will probably ask for another reduction in the deficit in order to sustain a lower debt-to-GDP ratio.

All in all, the problems are not resolved.

3) China and the US are clashing again

The US trade envoy had a lot of criticism against China. After a week in which the world's largest economies seemed to take steps to ease tensions, the clash around the talks to reform the WTO does not bode well.

And while stock futures turned lower, the greenback was not able to gain ground against the Euro. This is a bullish sign.

All in all, the pair is showing strength.

EUR/USD Technical Analysis

Momentum has turned positive for the pair, albeit only marginally. The turnaround is a bullish sign. The Relative Strength Index is not going anywhere.

1.1350 remain a battle line. It supported the pair in late November, and the 50 Simple Moving Average meets the price there. 1.1380 was a swing high in late November, and 1.1395 was a peak last week. Further above, 1.1430 and 1.1440 are notable. 

1.1330 was a swing low last week and a weak line of support. 1.1305 was a swing low twice in recent weeks, and 1.1270 is a double-bottom. 1.1215 follows: it was the low point of the year.