EUR/USD Forecast: Traders remain noncommittal; focus on Lagarde's testimony, US ISM PMI

  • A subdued USD demand prompted some intraday short-covering on Friday.
  • The uptick lacked any strong follow-through amid persistent trade uncertainty.
  • Lagarde's testimony, US ISM Manufacturing PMI eyed for a fresh impetus.

The EUR/USD pair on Friday witnessed a late recovery of around 30 pips from levels below the key 1.10 psychological mark, or fresh multi-week lows, albeit remained well within a familiar trading range. As the focus remained on US-China trade progress, the US dollar seesawed between tepid gains/minor losses amid holiday-thinned liquidity conditions and turned out to be one of the key factors prompting some intraday short-covering bounce.

Investors remain on the sidelines

It is worth recalling that the US President Donald Trump last week signed a law backing Hong Kong and Chinese officials have threatened to take firm countermeasures. The latest developments threatened to derail the recent progress in trade talks between the world's two largest economies and kept the USD bulls on the defensive ahead of the next batch of tariffs on Chinese goods, due on December 15.

On the economic data front, the flash version of the Euro-zone consumer inflation figures came in better-than-expected, though did little to provide any meaningful impetus to the shared currency. In fact, the headline CPI was seen accelerating to 1.0% YoY in November as compared to 0.7% previous. Adding to this, core CPI – stripping food and energy costs – was estimated to have risen by 1.3% during the reported period, up from 1.1% recorded in October and surpassing market expectations.

The finally ended the day with modest gains, nearly unchanged for the week, and extended its sideways consolidative price action through the Asian session on Monday. Meanwhile, traders seemed rather unimpressed by an unexpected jump in China’s manufacturing activity in November. According to the official data released over the weekend, China's official manufacturing PMI moved in the expansion territory for the first time since April and came in at 50.2 for November.

Moving ahead, market participants now look forward to the final Euro-zone Manufacturing PMI, which coupled with the ECB President Christine Lagarde's testimony before the European Parliament might influence the common currency and provide some short-term impetus. Later during the early North-American session, the release of the US ISM Manufacturing PMI for November might further contribute towards producing some short-term trading opportunities on the first day of a new week.

Short-term technical outlook

From a technical perspective, the pair on Friday once again showed some resilience below the 1.10 handle but the attempted recovery move failed to make it through the weekly high resistance near the 1.1030 region. Hence, it will be prudent to wait for some follow-through buying before positioning for a move back towards 100-day SMA, currently near the 1.1070-75 region. Above the mentioned barrier, a fresh bout of short-covering has the potential to lift the pair further beyond the 1.1100 round-figure mark towards testing the double-top resistance, near the 1.1170-80 region en-route the 1.1200 handle.

On the flip side, the 1.1090-80 region might continue to protect the immediate downside, which if broken decisively will now set the stage for a sharp depreciating move towards the 1.0955-50 intermediate support. The downward momentum then could drag the pair further towards challenging the 1.0900 round-figure mark.


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