Technical Analysis

EUR/USD Price Analysis – Dec 18, 2023

By LonghornFX Technical Analysis
Dec 18, 20234 min

Daily Price Outlook

Despite the weaker Eurozone data, the EUR/USD currency pair maintained its upward momentum and surged to gains near 1.0920 level. However, the reason for its upward rally can be attributed to the US dollar bearish bias. Notably, the Federal Reserve (Fed) signaled an end to its monetary policy tightening cycle last Wednesday, with the "dot plot" indicating at least three 25 basis points (bps) rate cuts in 2024. This dovish stance has undermined the US Dollar (USD) and contributed to the gains in the EUR/USD pair.

Challenges in Eurozone Business Activity Raise Recession Concerns

It's worth noting that Eurozone business activity unexpectedly declined in December, signaling that the economy is likely in a recession. The preliminary Eurozone HCOB Composite PMI fell to 47.0, below the market's expected 48.0 and November's 47.6. This marks the seventh consecutive month below the growth threshold of 50.

Furthermore, the Eurozone Manufacturing PMI dropped to 44.2, falling below expectations, and the Services PMI fell to 48.1, missing the estimated 49.0. This data suggests a probable contraction in the Eurozone economy in Q4, contrary to the European Central Bank's projections. Consequently, the Euro (EUR) faces selling pressure but it was short-lived.

Mixed Signals in US Economic Indicators and Fed's Dovish Stance

It should be noted that the S&P Global Composite PMI hit a promising five-month high at 51.0 in December, up from 50.7. However, the Manufacturing PMI dropped to its lowest in four months, slipping from 49.4 to 48.2. On a positive note, the Services PMI rose to 51.3 in December from 50.8 in November.

Moreover, the Federal Reserve (Fed) suggested they're done tightening monetary policy, planning three rate cuts in 2024. Yet, some key Fed officials disagreed, hinting that early rate cuts might not happen. This disagreement led to a short-covering rally for the US Dollar (USD) on Friday, recovering from its lowest point since July 31. Despite the rebound, the USD didn't gain much ground due to the Fed's overall dovish stance and positive market sentiment. This tends to weaken the dollar's safe-haven appeal, contributing to gains in the EUR/USD pair.

EUR/USD Price Chart – Source: Tradingview
EUR/USD Price Chart – Source: Tradingview

EUR/USD - Technical Analysis

The EUR/USD pair has shown a modest yet positive performance recently, registering a 0.15% increase to 1.09115. This movement reflects the ongoing adjustments in the forex market, where subtle shifts often speak volumes about underlying economic sentiments.

Currently, the pivot point for EUR/USD is situated at $1.0756, which acts as a critical indicator for future movements. The immediate resistance lies at $1.0881, with further barriers at $1.1024 and $1.1145. These levels will be crucial for traders to watch, as a breach of these could signify stronger bullish momentum. On the downside, immediate support is found at $1.0618, followed by $1.0484 and $1.0359, marking key levels where the bearish trend could find a halt.

The technical indicators present a mixed picture. The Relative Strength Index (RSI) stands at 56, indicating a slight bullish sentiment. An RSI above 50 often signifies positive momentum, yet it's not far enough from the midline to suggest a strong trend. Conversely, the Moving Average Convergence Divergence (MACD) values, with a MACD of -0.00064 and a signal line at 0.00296, imply a potential downward movement. This divergence calls for a careful analysis of forthcoming market changes.

The 50-Day Exponential Moving Average (EMA) at $1.0918 currently supports the EUR/USD uptrend. The recent Doji candlestick pattern close over the 50 EMA indicates a weakening downtrend and a possible shift towards buying.

In summary, the overall trend for EUR/USD appears bullish, especially if it sustains above $1.08960. The short-term forecast suggests that the pair may test higher resistance levels in the upcoming days. However, the mixed signals from RSI and MACD necessitate vigilant market observation, as these could indicate shifting trends or potential reversal points.

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