|premium|

EUR/USD Forecast: Euro closes in on key support level

  • EUR/USD came under bearish pressure and declined below 1.0850.
  • The US Dollar benefits from risk aversion early Friday.
  • Technical sellers could take action if the pair drops below 1.0800.

After closing in negative territory on Thursday, EUR/USD extended its slide and touched its lowest level since mid-December below 1.0850. The near-term technical outlook points to a build-up of bearish momentum and additional losses could be seen if 1.0800 support fails.

The European Central Bank (ECB) left key rates unchanged as expected following the January policy meeting and didn't make any significant changes to the statement language. During the post-meeting press conference, ECB President Christine Lagarde refrained from commenting on the possible timing of a policy pivot and repeated that policymakers agreed that it was still premature to talk about rate cuts. Lagarde, however, noted that the wage growth was already declining and added that they were expecting inflation to continue to ease over the course of 2024.

Although the Euro stood relatively resilient in the immediate aftermath of the ECB event, it failed to attract buyers later in the day. Meanwhile, the risk-averse market atmosphere, as reflected by the sharp decline seen in US stock index futures early Friday, provided a boost to the USD and further weighed on the pair.

The US Bureau of Economic Analysis (BEA) will release Personal Consumption Expenditures (PCE) Price Index data for December later in the day. On Thursday, the BEA reported that the PCE Price Index rose 2% on a quarterly basis in the fourth quarter. This reading matched the third quarter's increase and came in line with the market expectation. Hence, the market reaction to December PCE inflation figures is likely to be muted.

Other data from the US showed that the Gross Domestic Product (GDP) expanded at an annual rate of 3.3%, beating analysts' estimate for a 2% growth by a wide margin and further supporting the USD.

In case safe-haven flows dominate the action in financial markets in the second half of the day, EUR/USD could have a difficult time staging a rebound ahead of the weekend.

EUR/USD Technical Analysis

The Fibonacci 50% retracement level of the October-December uptrend aligns as critical support near 1.0800. If EUR/USD falls below that level and starts using it as resistance, 1.0740 (static level) could be seen as interim support before 1.0700 (psychological level, Fibonacci 61.8% retracement).

On the upside, 1.0830 (former support, static level) aligns as immediate resistance before 1.0865 (Fibonacci 38.2% retracement) and 1.0900 (psychological level, static level).

Premium

You have reached your limit of 3 free articles for this month.

Start your subscription and get access to all our original articles.

Subscribe to PremiumSign In

Author

Eren Sengezer

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.

More from Eren Sengezer
Share:

Editor's Picks

EUR/USD weakens to near 1.1900 as traders eye US data

EUR/USD eases to near 1.1900 in Tuesday's European trading hours, snapping the two-day winning streak. Markets turn cautious, lifting the haven demand for the US Dollar ahead of the release of key US economic data, including Retail Sales and ADP Employment Change 4-week average.

GBP/USD stays in the red below 1.3700 on renewed USD demand

GBP/USD trades on a weaker note below 1.3700 in the European session on Tuesday. The pair faces challenges due to renewed US Dollar demand, UK political risks and rising expectations of a March Bank of England rate cut. The immediate focus is now on the US Retail Sales data. 

Gold sticks to modest losses above $5,000 ahead of US data

Gold sticks to modest intraday losses through the first half of the European session, though it holds comfortably above the $5,000 psychological mark and the daily swing low. The outcome of Japan's snap election on Sunday removes political uncertainty, which along with signs of easing tensions in the Middle East, remains supportive of the upbeat market mood. This turns out to be a key factor exerting downward pressure on the safe-haven precious metal.

Bitcoin Cash trades lower, risks dead-cat bounce amid bearish signals

Bitcoin Cash trades in the red below $522 at the time of writing on Tuesday, after multiple rejections at key resistance. BCH’s derivatives and on-chain indicators point to growing bearish sentiment and raise the risk of a dead-cat bounce toward lower support levels.

Follow the money, what USD/JPY in Tokyo is really telling you

Over the past two Tokyo sessions, this has not been a rate story. Not even close. Interest rate differentials have been spectators, not drivers. What has moved USD/JPY in local hours has been flow and flow alone.

Bitcoin Cash trades lower, risks dead-cat bounce amid bearish signals

Bitcoin Cash (BCH) trades in the red below $522 at the time of writing on Tuesday, after multiple rejections at key resistance. BCH’s derivatives and on-chain indicators point to growing bearish sentiment and raise the risk of a dead-cat bounce toward lower support levels.