EUR/USD Daily Forecast – Test Of Support At 1.1325

Euro Declines Against U.S. Dollar

EUR/USD is currently trying to settle below the support at 1.1325 while the U.S. dollar is moving higher against a broad basket of currencies.

The U.S. Dollar Index is testing the resistance level at 96. In case this test is successful, the U.S. Dollar Index will gain additional upside momentum and head towards the next resistance at 96.25 which will be bearish for EUR/USD.

Yesterday, EU reported that Euro Area Inflation Rate increased by 0.5% month-over-month in November compared to analyst forecast of 0.1%. On a year-over-year basis, Euro Area Inflation Rate grew by 4.9% while analysts expected that it would grow by 4.5%. Euro Area Core Inflation Rate increased by 2.6% year-over-year while analysts expected growth of 2.3%.

Inflation reports provided significant support to euro. However, euro faced strong resistance after Fed Chair Jerome Powell highlighted inflation risks and indicated that Fed may start to aggressively reduce its asset purchase program.

Today, foreign exchange market traders will have a chance to take a look at the final reading of Euro Area Manufacturing PMI report which is projected to show that Euro Area Manufacturing PMI increased from 58.3 in October to 58.6 in November.

Traders will also stay focused on the Fed after the sudden change of tone. While markets have stabilized after the initial reaction to Powell’s comments, the new narrative will have a material impact on currency dynamics in the upcoming weeks.

Technical Analysis

EUR/USD is currently testing the support level at 1.1325. In case this test is successful, EUR/USD will move towards the next support at 1.1300.

A move below the support at 1.1300 will open the way to the test of the support at 1.1270. In case EUR/USD declines below this level, it will head towards the support at 1.1230.

On the upside, the nearest resistance level for EUR/USD is located at the 20 EMA at 1.1350. If EUR/USD manages to settle above the 20 EMA, it will head towards the resistance at 1.1370. A successful test of the resistance at 1.1370 will push EUR/USD towards the next resistance at 1.1400.

For a look at all of today’s economic events, check out our economic calendar.