EUR/USD Forecast: Optimism limits US Dollar demand

EUR/USD Current price: 1.0843

• European data was mixed, as the German economy contracted in Q4.
• Attention shifts to United States employment-related figures ahead of Fed, NFP.
• EUR/USD recovered some ground, but bears hold the grip.

The EUR/USD pair hovers around 1.0840, recovering some of the ground lost on Monday amid a better market mood weighing on the US Dollar. Wall Street closed the day in the green after its overseas counterparts hesitated for direction, with US indexes benefiting from earnings reports and a positive surprise from the United States (US) Treasury, which cut its quarterly borrowing estimate. As a result, government bond yields fell sharply, putting additional pressure on the USD demand.

European data was mixed, as Germany confirmed the economy contracted in Q4. The Gross Domestic Product (GDP) declined 0.3% in the three months to December, while the annualized reading came in at -0.2%, as expected. However, the Eurozone GDP in the same period was up 0.1% from a year earlier, better than the 0% expected. Additionally, the January Economic Sentiment Indicator posted 96.2 as expected, while Consumer Confidence in the same month contracted to -16.1.

Market players will now turn their eyes to US data, as the country will release January Consumer Confidence and the JOLTS Job Openings report, relevant ahead of the Nonfarm Payrolls (NFP) report scheduled for next Friday. In the meantime, the Federal Reserve (Fed) will announce its monetary policy decision on Wednesday.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD pair shows it is battling with a directionless 200 Simple Moving Average (SMA) providing dynamic resistance in the current price zone. The 20 SMA, in the meantime, maintains its bearish slope well above the current level, suggesting limited buying interest. Finally, technical indicators remain within negative levels, with neutral-to-bearish slopes, supporting another leg south.

In the near term, the ongoing advance seems a mere correction. The upside is being capped by a bearish 20 SMA, which accelerates its decline below the longer ones. At the same time, technical indicators tick north, but with limited strength and still below their midlines. Bears could lose interest if the pair accelerates through 1.0890, although price action will likely remain limited ahead of the Fed’s decision.

Support levels: 1.0800 1.0760 1.0720

Resistance levels: 1.0845 1.0890 1.0945