The EUR/USD ended the week near 1.02669, a level that echoes lows seen in November 2022. These prices are significant, as they occurred during a bullish rebound after the currency pair touched near 0.96300 in September and October of the same year.
Technical Analysis vs. Fundamental Pressures:
Technical traders might interpret these low levels in several ways: as a reminder of past lows, a sign of oversold conditions ripe for a bounce, or a combination of both – with the possibility of even lower prices before an eventual reversal. However, fundamental factors are also heavily influencing the EUR/USD’s value.
Market Sentiment and the Impact of Global Events:
Monday’s trading volume is expected to be lower due to the U.S. holiday. However, the EUR/USD’s performance could serve as an indicator of market sentiment in Asia and Europe. The inauguration of Donald Trump as the 47th President of the U.S. adds another layer of uncertainty and potential volatility.
Last Monday saw a dip to around 1.01790, but the EUR/USD failed to establish a strong upward trajectory. The closing price of 1.02669 is not a definitive sign of a sustained rally, as underlying nervousness and USD strength remain prevalent.
Key Factors Influencing the Coming Week:
- Fragile Sentiment: Last week’s price action, which saw the 1.02000 level tested, highlights the market’s delicate sentiment. The 1.03000 area acted as significant resistance.
- Divergent Central Bank Outlooks: The possibility of the European Central Bank (ECB) further cutting interest rates while the U.S. Federal Reserve (Fed) maintains or cautiously cuts interest rates is a major concern.
- Trump’s Inauguration: The potential for market volatility due to President Trump’s inauguration adds significant uncertainty to the Forex landscape.
- Lack of Major Data: The absence of major economic data releases from Europe and the U.S. will make the EUR/USD more susceptible to existing market sentiment.
Trading Strategy Considerations:
- Risk Management is Crucial: Traders should expect fluctuating sentiment and adjust their risk management strategies accordingly.
- Watch for Initial Reactions: Monday’s trading, while low in volume, may give clues about the mood in Asia and Europe. Tuesday will bring increased volume and potential for reactive moves linked to Trump’s speech and USD strengthening..
- USD Strength Persists: The USD’s strength is unlikely to dissipate in the short-term, which may lead to continued choppy trading and risk-averse USD buying.
EUR/USD Weekly Outlook:
- Expected Trading Range: 1.01200 to 1.03400.
- Caution on Downside: While an eventual EUR/USD recovery is likely, the timing remains uncertain, and the recent drop below 1.02000 serves as a warning sign that further downside is possible.
- Market Sensitivity: The current market is prone to being sensitive to rhetoric and policy decisions coming from political events.
- Choppy Trading Expected: Expect continued choppy price action, with the risk of USD strength remaining the primary driver.
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