EUR/USD Forecast: Mixed signs after sharp decline
- Eurozone CPI shows slower-than-expected annual inflation in November; final PMI due on Friday.
- US data indicates further evidence of inflation slowing down, along with a softer labor market.
- The EUR/USD slide continues as the Euro lags and the US Dollar strengthens on higher yields.
The EUR/USD experienced its most significant decline in over a month, continuing the correction after reaching three-month highs above 1.1000. The pair bottomed at 1.0883, and it appears poised for consolidation with a downside risk in the short-term.
The Eurozone Consumer Price Index (CPI) rose 2.4% compared to a year ago in November, which is below October's 2.9%, and the Core rate decreased to 3.6% from 4.2%. This represents the slowest annual increase since July 2021. As inflation continues to approach the European Central Bank's (ECB) 2% target, the market does not anticipate further rate hikes and speculation arises about when the first rate cut may occur.
The Euro lagged in the market for the second consecutive day, particularly against the Swiss Franc. The latest reports weighed on the Euro. On Thursday, the final readings of the Manufacturing PMIs are due.
The US Dollar strengthened in the market, gradually supported by a rebound in US Treasury yields and despite risk appetite. Data from the US came in mixed. Inflation numbers met expectations, indicating that the downward inflation trend continues to move toward the Federal Reserve's target but remains above it. Continuing Jobless Claims reached their highest level since November 2021, providing further evidence of a softer labor market. On Friday, US data including the ISM Manufacturing PMI is scheduled for release.
EUR/USD short-term technical outlook
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Technical indicators on the daily chart favor the downside, but the main trend remains up, although it has lost momentum. A daily close above 1.1000 would pave the way for more gains, while below 1.0780 would change the bias.
On the 4-hour chart, EUR/USD broke an uptrend line and is testing the 1.0890 support level area. The next target below is at 1.0860, and a break would bring the key level of 1.0830 into focus, which is likely to attract fresh buyers. Technical indicators show a negative bias; however, the Relative Strength Index (RSI) is approaching oversold levels. This could indicate some consolidation ahead near the 1.0900 area. For the Euro to remove the short-term bearish bias, it needs to rise above the 20-period Simple Moving Average (SMA) at 1.0960.
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Author
Matías Salord
FXStreet
Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.
