EUR/USD Daily Forecast – Euro Retreats to 200 DMA

US Dollar Extends Higher in Recovery

The US Dollar index (DXY) rallied a third of a percent on Thursday, dragging most of the major currencies lower. The greenback is seeing some follow-through buying in the early day on Friday which has caused a drop below notable support in EUR/USD.

Economic data from the Euro area came in mixed earlier today. Unemployment figures from Germany and Spain were reported slightly lower than the analyst estimate while French CPI beat expectations.

Later in the session today, two data releases stand to move the markets. The ISM manufacturing PMI will be released in the early US session and the latest Fed meeting minutes will be released in the late day.

The break below support for EUR/USD could lead to more near-term losses although a notable support confluence is within sight. Among the major currencies, the single currency has been holding up quite well in this dollar recovery. The antipodean currencies have gotten hit the hardest in the current dollar upturn. The Japanese yen is the only currency that has not gained against the greenback since the dollar turn yesterday. The yen has gained on a shift in risk sentiment after news of a US airstrike that killed an Iranian Major-General.

Technical Analysis

EUR/USD is nearing several layers of support. The pair is currently testing its 200-day moving average which is an indicator that tends to carry weight.

Slightly below it, there is further support from a horizontal level at 1.1129. This price point also carries confluence with a declining trendline that is drawn connecting the high from last September with the high from June.

Considering the confluence of support, EUR/USD could catch a bid from the current area. However, the downside momentum has been strong and there has not been any indication of a turn as of yet.

Further, the pair dropped below important support at 1.1173. This is a level that previously acted as resistance from mid-October until the upside break last week. Although the level held the downside into the close on Thursday, the general lack of buying from it signals near-term weakness.

Bottom Line

• EUR/USD is near an important support area that stands to hold buyers
• Volatility is expected in the US session as the Fed will release minutes from their last meeting and the ISM reports their manufacturing PMI.