EUR/USD Forecast: Losing its chains and ready to rally

EUR/USD kicks off the new week on the upside, trading at the highest levels since November 20th. The US Dollar is on the back foot as the benchmark 10-year Treasury yield is on the back foot, down to 2.85%. 

The US Non-Farm Payrolls slightly missed expectations on Friday with 155K jobs gained and Average Hourly Earnings rising by only 0.2% MoM. The news slightly dents the chances of multiple rate hikes in 2019. 

Tensions between the US and China continue as Huawei's CFO Meng remains in custody in Canada, upon a US court's request. US Trade Representative Robert Lighthizer claims the legal proceedings have nothing to do with trade talks, but China has a different perspective. The situation weighs on markets.

As recently as last week, the greenback gained when stocks dropped. The advance of EUR/USD despite the news implies a potential decoupling of a stronger USD with falling stocks. Are Fed expectations setting the tone instead of trade?

This is a bullish sign for the pair. 

Back in the old continent, Germany's ruling CDU party elected Annegret Kramp Karrenbauer as party leader. She is called "mini-Merkel." Apart from being an ally of Chancellor Angela Merkel, she is considered as a status quo candidate, providing stability for the euro zone's largest economy.

Stability is also seen in the second-largest economy. French President Emmanuel Macron is set to offer further concessions to the "gilets jaunes" (yellow vests) protestors. Italy, the third-largest economy, continues negotiating with the European Commission on the budget.

Brexit continues having an impact on the common currency. The European Court of Justice ruled that the UK can unilaterally revoke Article 50, thus reversing Brexit, accepting the opinion of its General Advocate. The UK Parliament is set to reject the Brexit deal on Tuesday, and options from a no-deal Brexit to no-Brexit will become available. Uncertainty is high.

Later in the week, the European Central Bank is projected to formally announce the end of the bond-buying scheme, and provide new inflation and growth forecasts.

EUR/USD Technical Analysis - Looking good

EUR/USD is getting comfortable at the 1.1400 handle and hit a high of 1.1442, the highest in three weeks. As the thick black line shows, the pair is capped below an uptrend support line. 

Will the pair break higher? There are a few positive signs. EUR/USD is trading above the 50, and 200 Simple Moving Averages on the four-hour chart and the 50 SMA is about to cross above the 200 SMA, a bullish indicator. Moreover, Momentum is to the upside, and the Relative Strength Index is pointing to the upside but remains below 70, thus not suffering from overbought conditions.

All in all, the picture is bullish.

1.1435 was a peak in late November, and the break above this line is not confirmed. Uptrend support stands at around 1.1450 at the time of writing. Further up, 1.1475 capped the pair in mid-November, and the round 1.1500 level was the peak last month.

1.1405 held EUR/USD down late in November. It is closely followed by 1.1380 which was swing high around that time. 1.1360 was the springboard from which the pair moved higher in recent days. 1.1320 was a low point last week, and the round number of 1.1300 was a double bottom earlier in the autumn.

More: EUR/USD path of least resistance remains to the upside – Confluence Detector