EUR/USD Forecast: Too low, too fast? Oversold conditions and Goldilocks data could trigger a rally

How low can the euro go? The world's most popular currency pair has dropped to a near three-week low in response to dollar demand. The greenback has been receiving flows throughout the week – regardless of data. It may be in for a reality check. 

On Thursday, it is essential to remember that the move began before the release of upbeat US Retail Sales. US consumers were busy spending on almost everything – with auto sales and restaurants being the exception. Headline sales leaped 0.8% against a fall of 0.7% projected and core figures also rose.

Good US data should improve the market mood and eventually weigh on the dollar. Apart from retail data, the Philly Fed Manufacturing Index beat estimates with 30.7 points, while the inflation component eased from the highs. It adds to the picture of an improving economy while price pressures are easing. 

Stock markets remain under pressure but that may change and eventually send investors away from the safe-haven dollar. 

US Data Analysis: Strong demand, weaker inflation, Goldilocks state for markets set to return

In the old continent, European Central Bank President Christine Lagarde said that the recovery has been faster than anticipated six months ago and that "we are back from the brink." While Lagarde added that "we are still not out of the woods," her message was upbeat. 

Overall, fundamentals point to a EUR/USD bounce.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) is touching the 30 level – indicating oversold conditions, implying a bounce. On the other hand, euro/dollar slipped under the 200 Simple Moving Average, while momentum is leaning lower. 

Support awaits at 1.1740, which was a swing high in mid-August. It is followed by 1.1725, a cushion from late last month. Further down, 1.1690 and 1.1660 are eyed. 

Resistance is at 1.1675, last week's low. The next level to watch is 1.18, a support line from recent days, followed by 1.1845.