Technical Analysis

EUR/USD Price Analysis – Jan 01, 2024

By LonghornFX Technical Analysis
Jan 1, 20243 min

Daily Price Outlook

The EUR/USD currency pair continued its upward trend, remaining bullish on the first day of the new year. However, the upticks in the EUR/USD pair were supported by mild losses in the US Dollar during a holiday session. The pair maintains its broader bullish bias, with downside attempts limited well above 1.1000, and it is on track to close the year with a 3.3% advance, breaking a two-year decline streak. However, the Federal Reserve's (Fed) dovish stance has initiated a risk rally, causing the US Dollar to decline and contributing to the EUR/USD pair gains.

Economic Slowdown in the US Fuels Speculation of 2024 Fed Rate Cuts and Strengthens Euro Against Weakening Dollar

It's crucial to emphasize that recent data from the US indicates an economic slowdown. Notably, Jobless Claims surged by 118K in mid-December, surpassing the expected 110K. Meanwhile, Pending Home Sales in November remained stagnant, falling short of the anticipated 1% increase. These figures support the perspective that the US economy is gradually decelerating in Q4, potentially heading for a soft landing. This has spurred speculation about the Federal Reserve implementing rate cuts in 2024, with futures markets indicating an 85% probability of cuts in March and a total of 150 basis points throughout the year, according to the CME Group FedWatch Tool.

Therefore, the news of a slowing US economy and potential Fed rate cuts in 2024 has likely weakened the USD. This could result in a positive impact on the EUR/USD pair, leading to a potential strengthening of the Euro against the US Dollar.

Euro Strengthens Amid Steady Inflation in Spain, ECB Caution, and US Dollar's Decline

On the other side, the consumer prices in Spain held steady at a 3.3% yearly rate, indicating persistent inflation in some countries. This supports the European Central Bank's (ECB) cautious approach and strengthens the Euro. Despite the Euro standing firm, the US Dollar remains close to a five-month low due to declining US yields. Notably, the Spanish Consumer Prices Index remained unchanged in December, maintaining a 3.3% annual growth. In addition to this, Austrian Central Bank Governor and ECB member Robert Holzmann remarked on Thursday that a rate cut in 2024 is not guaranteed, providing additional support to the Euro.

Therefore, the steady inflation in Spain and the ECB's cautious stance support the Euro, potentially exerting upward pressure on the EUR/USD pair. Meanwhile, the US Dollar's proximity to a five-month low may further contribute to a stronger Euro.

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

EUR/USD - Technical Analysis

The EUR/USD pair begins the new year with subtle movements, indicating a cautious approach by traders. As of January 1, the pair is trading at 1.10375, marking a slight decrease of 0.23%. The currency pair, a barometer for transatlantic economic health, is navigating through crucial technical junctures that will shape its trajectory in the upcoming sessions.

On the weekly chart, the pivot point is established at $1.0982, a critical level for future directional movements. The EUR/USD faces immediate resistance at $1.1074, followed by higher barriers at $1.1131 and $1.1221. These levels serve as potential ceilings for the pair's upward movement. Conversely, support levels are set at $1.0925, $1.0833, and $1.0778, which could provide cushions against downward price pressures.

The Relative Strength Index (RSI) stands at 46, signifying a neutral to slightly bearish sentiment in the market. The Moving Average Convergence Divergence (MACD) is at -0.0009, indicating a potential for downward momentum, as it is below its signal line at 0.0012. Additionally, the pair is trading below its 50-Day Exponential Moving Average (EMA) of $1.1061, reinforcing a short-term bearish outlook.

However, the observed chart patterns, including a symmetrical triangle, suggest potential for either a breakout or a continuation of the current trend, depending on market dynamics and economic indicators in the coming days.

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