EUR/USD Forecast: Risks starting to tilt to the downside

The US Dollar Index modestly rises but continues to face pressure.
Upside potential in EUR/USD remains limited while below 1.1000.
Data scheduled in the US on Thursday includes Jobless Claims, Philly Fed, and Q3 GDP.

Matías Salord FXStreet

The EUR/USD dropped amid a modest recovery of the US Dollar Index on Wednesday. The pair is moving without a clear direction, unable to surpass the 1.1000 level. It is supported by an overall weak US Dollar and a some risk appetite.

Data released from the US on Wednesday exceeded expectations. Existing Home Sales increased by 0.8% in November to a seasonally adjusted annual rate of 3.82 million, surpassing the market consensus of 3.77 million, thus ending a five-month decline. Additionally, CB Consumer Confidence rose from 101.0 to 110.7, reaching the highest level in five months. More data from the US is due on Thursday with Jobless Claims, the Philly Fed, and the third estimate of Q3 GDP. Friday brings the crucial report of the week, the Core Personal Consumption Expenditure (Core PCE), which is the Fed’s favored inflation measure.

Eurostat reported an improvement in Consumer Confidence in December, with the main index rising from -16.4 to -15.1. European Central Bank (ECB) officials continue to push back against market expectations for rate cuts early in 2024. Late on Wednesday, Governing Council member Martins Kazaks reiterated the need for interest rates to remain at current levels for some time.

The overall tone in EUR/USD remains biased to the upside. However, the pair needs to climb above 1.1000 soon before market participants focus again on the divergence in economic performance between the US and the Eurozone.

EUR/USD short-term technical outlook

The EUR/USD lost ground on Wednesday, marking another inside day. The pair remains above the 20-day Simple Moving Average (SMA) with mixed technical indicators on the daily chart. While trading below 1.1000, the upside seems unstable; a daily close above that level is needed to signal further gains. However, a drop below 1.0880 would suggest a stronger possibility of a deeper correction.

On the 4-hour chart, the Relative Strength Index (RSI) is moving south, and Momentum is declining, indicating that risks are starting to lean towards the downside. The immediate support level stands at 1.0935, represented by a horizontal level and the 20-SMA. A breach below this level could expose 1.0900, followed by the next relevant support at 1.0890.

View Live Chart for the EUR/USD

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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.

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