EUR/USD Daily Forecast – Euro Recovery Stalls at 50 DMA

EUR/USD surged higher late last week but has struggled to continue the upward momentum in the early week thus far. The recovery that took place on Friday, the last trading day of January, may have been the result of position squaring ahead of the month-end.

Risk sentiment has once again shifted in the early week as investors have regained their appetite for risk after a sharp decline in risk assets on Friday. The S&P 500 is up about one percent in the pre-market while gold prices have declined roughly half a percent at the time of writing.

The euro is susceptible to shifts in risk sentiment as it is often used as a funding currency. However, it is less sensitive than the Japanese yen and Swiss franc which are commonly known as safe-haven currencies.

Inline with the theme of risk appetite, both the Reserve bank of Australia and the Bank of Japan left rates unchanged today. Some investors may have expected a bit more of a dovish tone from policymakers after the escalation in the Coronavirus outbreak last week.

The number of unemployed people in Spain rose to 90 thousand in January, well above the analyst estimate of 44 thousand. The Spanish Ministry of Employment report discussed seasonality patterns and pointed out that unemployment rates have risen in January over the last 25 years. Last month’s rise was less than the average over the past decade.

Technical Analysis

A resistance confluence consisting of the 20 and 50-day moving averages has held the rally in EUR/USD thus far. The pair reached a low a 1.1034 yesterday, coming close to printing a bearish engulfing candle, but was lifted higher after US manufacturing data.

A cross above the moving average resistance, roughly around 1.1090, could signal a bigger move to come. At the same time, it is important to be mindful of the bearish trend that has been taking place since the start of the year. At this point, there does not seem to be enough technical evidence that a bullish reversal has taken place.

Support for the session ahead is found at 1.1025.

Bottom Line

• EUR/USD has lost upward momentum in the early week.
• Upside resistance from the 50-day moving average is found near 1.1090. The 20-day MA is within proximity to create a confluence.