EUR/USD Daily Forecast – Euro Threatens Bearish Break as Dollar Regains Strength

EUR/USD was dragged lower by yesterday’s US retail sales report and is holding near lows, threatening a break of support.
Jignesh Davda

Thursday’s US retail sales report reflected a rise of 0.3% in sales for December and a 0.7% increase in sales excluding autos. The upbeat report renewed interest in the dollar which had been declining since last week’s US jobs report.

EUR/USD rallied towards resistance at 1.1176 on Thursday and reversed lower following the report. A support area at 1.1129 contained the drop although recoveries from it have been shallow. A break below support might suggest that the pair has resumed lower within the downtrend that began at the start of the new year.

Retail sales from the UK were reported shortly after the European open today. The figures fell short of expectations and have been weighing on Sterling, which in turn has underpinned the greenback.

Investors will look next to inflation data out of Europe as the consumer price index is scheduled for release. Analysts are looking for an annual rise of 1.3% which would reflect the largest price increase over the last seven readings.

The inflation data should set the tone for the ECB meeting which is scheduled to take place next week.

Technical Analysis

EUR/USD has been trading around a fairly important technical area. It stems from the 200 and 20-day moving averages which have converged around 1.1137. Today’s daily close in relation to it will be important for a directional bias.

EURUSD Daily Chart

The pair closed right at the moving average confluence on Thursday and is currently trading below it. A horizontal level at 1.1129 held the decline yesterday and the pair is threatening a bearish break.

EURUSD Hourly Chart

The US dollar index (DXY) is showing signs of strength. DXY broke down from a three-day range on Wednesday to offer a bearish signal. However, the index has rallied over the last two sessions to erase the decline.

Sellers will typically look to defend the breakout point of a bearish range break but this has not been the case for DXY. This points to underlying strength in the greenback although further confirmation can be had from a bearish break below 1.1129 in EUR/USD.

Bottom Line

  • Thursday’s US retail sales report has reignited interest in the dollar.
  • A daily close below a moving average confluence at 1.1137 in EUR/USD might suggest the pair has resumed lower in the bearish trend that has dominated the month thus far.
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