EUR/USD Forex Technical Analysis – Well-Supported from 1.2220 to 1.1255 at Start of New Year

The Euro ended 2020 at 1.2216, up 8.97% on the year. It reached 1.2310 on Wednesday, the highest since April 2018, but pared gains as investors squared positions for the year.

Its roller-coaster ride in 2020 was fueled by wicked volatility in the U.S. Dollar, which rose sharply in March when panic over the spread of COVID-19 in the United States peaked, before plunging on unprecedented U.S. government fiscal aid and Federal Reserve monetary stimulus.

An improving global economic outlook as COVID-19 vaccines are rolled out, rock-bottom U.S. interest rates and ongoing Fed bond purchases have dented the dollar’s appeal. Expectations of additional fiscal stimulus and rising fiscal and current account deficits are additional headwinds that are likely to hurt the U.S. currency over the coming year.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 1.2310 will signal a resumption of the uptrend. The main trend will change to down on a move through the nearest swing bottom at 1.2059.

The minor trend is also up. A new minor top was formed at 1.2310 on Wednesday. A trade through this level will signal a resumption of the uptrend. A trade through 1.2130 will change the minor trend to down. This will also shift momentum to the downside.

The first minor range is 1.2059 to 1.2310. Its 50% level at 1.2220 was tested on Thursday.

The second minor range is 1.2059 to 1.2310. Its 50% level at 1.2185 is the next support followed by a Fibonacci level at 1.2155.

The short-term range is 1.1800 to 1.2310. Its 50% level at 1.2055 is controlling the near-term direction of the EUR/USD. It’s also the trigger point for an acceleration to the downside.

Short-Term Outlook

Friday’s close at 1.2216 likely means the early direction of the EUR/USD on Monday will be determined by trader reaction to the 50% level at 1.2220.

Bullish Scenario

A sustained move over 1.2220 will indicate the presence of buyers. If this move can generate enough upside momentum then look for a retest of last week’s high at 1.2310. Taking out this level will signal a resumption of the uptrend. This will also put the EUR/USD on track for an eventual test of the April 17, 2018 main top at 1.2413.

Bearish Scenario

A sustained move under 1.2220 will signal the presence of sellers. This could lead to a labored break with initial downside targets coming in at 1.2185 and 1.2155. These are the last two potential support levels before the 1.2130 minor bottom.