EUR/USD: Consolidating big comeback on Friday, camping out on 1.14 handle

EUR/USD made a strong recovery on Friday in a risk on the environment with headlines that an agreement has been reached to temporarily end the US government shutdown. Despite that, the USD underperformed against the G10s.

For the week ahead, the scheule is going tobe busy. We have the Fed, nonfarm payrolls, EZ CPI, Chinese manufacturing and the UK Parliamentary vote. 

With eyes on the Fed, the FOMC is expected to replace "some further gradual" hikes with flexible, data-dependent language, but still see risks as "roughly balanced." "Chair Powell could hint that the runoff policy could conclude sooner, but not give any concrete details or dates. We expect limited reaction after markets moved sharply Friday on rumours of a "roadmap" for the balance sheet," analysts at TD Securities. 

As for US jobs, there are expectations of a mean-revert to 150k following a larger-than-expected jump in December. "The unemployment rate should tick up to 4.0% largely reflecting furloughed government workers during the shutdown. For ISM manufacturing, regional surveys suggest further weakness in the manufacturing sector in January. We expect an additional moderation in the index to 53.3" the analysts at TD Securities expect.

The Brexit saga

MPs are lining up to vote on a series of amendments to May's "Plan B". Markets will look for where the majority goes in the voting of various amendments to the plan where extending Article 50 would likely be bullish for both the euro and pound, as would a second referendum. At the heart of the deadlock is the backstop to the Irish border which and customs union but for the event, it is the Cooper amendment which is most key which could be legislated formally on 5 Feb, thereby extending A50 to end-2019 if no deal is signed off by end-Feb - Bullish for markets. 

EUR/USD levels

• Support levels: 1.1380 1.1340 1.1300
• Resistance levels: 1.1420 1.1455 1.1490

Valeria Bednarik, Chief Analyst at FXStreet explained, that from a technical point of view, the daily chart shows that the recovery stalled around the 50% retracement of the December/January rally, also around a flat 20 DMA:

"The 100 DMA converges with the 38.2% retracement of the same advance at around 1.1455, acting as a strong resistance in the case the advance continues, while technical indicators remain in negative ground, having lost their downward strength but falling short of confirming a steeper advance ahead. In the shorter term, and according to the 4 hours chart, the bullish case is a firmer, as technical indicators re-entered bullish territory while the pair surpassed its 20 and 200 SMA, stalling around the 100 SMA, which stands directionless around the mentioned Fibonacci resistance in the 1.1420 price zone."