EUR/USD Daily Forecast – Euro Trying to Form a Base

The Action is in Metals

It was expected to be a slow week considering the holidays, and most of the major currencies have held within tight ranges. Precious metals, however, are seeing momentum-driven moves with silver gaining more than 4% in the week thus far.

The upward move in metals might suggest that the dollar recovery that started two-weeks ago might be coming toward an end. The US Dollar index (DXY), similar to EUR/USD, trades near an important technical inflection area. DXY has been facing resistance from its 200-day moving average, and rallies over the last four days have all failed to make a sustained break above the indicator.

From a slightly broader perspective, the dollar index has been trending lower since the start of the fourth quarter. This might just be the recovery that bears were waiting to sell into.

While the move in precious metals casts some doubt if the holiday week will continue to bring tight ranges for currencies, there has not been any indication that EUR/USD is ready to breakout. It would take a sustained break above 1.1110 to signal otherwise.

Technical Analysis

A confluence of the 100 and 50-day moving averages has been holding EUR/USD higher this week. Nevertheless, the pair has been holding in a range between roughly 1.1070 and 1.1095.

Near-term upside resistance for the pair is found at 1.1110. This is a level that held the pair lower in the early month and higher in the middle of the month. Considering it is well respected, a sustained break of it would offer a strong signal of a bullish reversal.

To the downside, it would take a break below this week’s low of 1.1067 to signal that the bearish trend is still intact.

A major hurdle for the pair this month has been the 200-day moving average. It currently resides at 1.1144. In the event EUR/USD attempts to break upward, this could prove to be a major barrier for the week.

Bottom Line

• EUR/USD continues to consolidate above important support
• An upside break above 1.1110 would signal a bullish trend reversal.