EUR/USD Daily Forecast – Euro Eases Back After Friday’s Surge

EUR/USD jumped sharply higher on Friday and closed the week out on a strong note, ending a prior four-week losing streak. The candlestick patterns on a weekly chart suggest there is potential for more upside, although the question is, how much weight should be put into Friday’s price action?

End of month price swings can often be erratic and what happened to EUR/USD on Friday might just be exactly that. These type of price movements often don’t see follow-through so it will be important to keep a close eye on the pair to get a better idea if an interim low is in place.

Manufacturing in the Eurozone continued to contract in January but at a slower pace than in December. The sector seems to have stabilized since October and there are signs of a recovery. Markit reported that business confidence improved to the highest level in more than a year.

Manufacturing data for the US will be released later in the US session. This economic report has fallen short of expectations in the last six readings. Analysts expect US manufacturing to have continued contracting in January, but similar to the Eurozone data, at a slower pace.

Technical Analysis

Friday’s upward move carried quite a bit of momentum behind it, but this might be strictly related to end of month positioning adjustments. The pair slightly overshot a fairly important resistance area, and the reaction from here will be important.

This resistance in EUR/USD comes from three points. First is a horizontal level at 1.1072. Second is the upper bound of a declining trend channel which had contained the decline from the start of the year. And lastly is a previously broken rising trendline. This trendline originates from the October low and is best seen on a daily chart.

While the pair pushed past this resistance area on Friday, sellers have stepped in to push the pair back below it. A sustained move above 1.1080 – 1.1100 might suggest that the pair has bottomed in the downward trend that took place for most of January.

Support for the session ahead is found at 1.1025.

Bottom Line

• Manufacturing in the Eurozone is stabilizing and data shows potential for a further recovery.
• EUR/USD has fallen back below notable resistance after briefly overshooting it following Friday’s surge.
• US manufacturing data will be released later in the day.