EUR/USD Eyes $1.17 as 38% Fib Bounce Fuels Short-Term Upside Momentum
The EUR/USD pair gradually climbed higher during the European session, bumping up against $1.1696 as it rebounded sharply...
Quick overview
- The EUR/USD pair has rebounded to $1.1696, showing signs of recovery in the Eurozone amid improving investor confidence.
- The Sentix Economic Confidence Index for January improved to -1.8, indicating a slight reduction in pessimism about the Eurozone's growth prospects.
- The US dollar is under pressure due to concerns about the Federal Reserve's independence, influenced by political debates and upcoming economic data.
- Technically, EUR/USD is testing key resistance levels, with a potential buying opportunity near $1.1675 if a pullback occurs.
The EUR/USD pair gradually climbed higher during the European session, bumping up against $1.1696 as it rebounded sharply from last week’s low of $1.1617. This move is a sign things are getting a bit better in the Eurozone as investor confidence is slowly starting to tick back up – and the US dollar is feeling a bit under pressure too. The result is a bit of breathing room for EUR/USD after what’s been a pretty rocky start to the year.
Looking at the big picture, the euro’s gotten a bit of a lift from investor confidence in the Eurozone which is starting to show some signs of recovery. At the same time, all the uncertainty about US monetary policy and the political noise coming out of Washington is also weighing on the dollar, giving EUR/USD room to test the waters above the $1.16 handle.
Sentix Data Offers a Glimmer of Hope for the Euro
Eurozone sentiment data offered a bit of hope. The Sentix Economic Confidence Index improved to -1.8 in January – up from -6.2 in December. That’s the best reading in six months, and while it’s still in the red, it shows investors are starting to get a bit less pessimistic about the region’s growth prospects.
But – even though the euro’s doing a bit better – its upside is being kept in check. Markets remain pretty nervous about all sorts of global risks, energy prices, and shifting rate expectations, so nobody’s getting too excited about the single currency just yet.
Dollar Takes a Hit from Fed Independence Worries
On the US side of things, the dollar softened a bit amid worries about the Federal Reserve’s independence. There’s been a lot of debate going on between Donald Trump and Jerome Powell, and The New York Times ran a story that’s got investors a bit spooked. Powell has even described the situation as “unprecedented” – and that’s just added to the concerns about how much political pressure is going to be put on monetary policy.
This backdrop has made traders a bit more cautious about the dollar, especially as we get closer to key events like the US CPI numbers and when Fed officials like Raphael Bostic will be speaking up.
EUR/USD Technical Outlook: $1.1740 in Focus
From a tech perspective, EUR/USD has managed to improve its short-term outlook. The pair broke through a descending trendline on the 1 hour chart and reclaimed its 20 EMA, and is now testing the 50 EMA just below $1.1673. This rebound lines up with the 38.2% Fib retracement, making the $1.1675 to $1.1680 area a key spot to watch.
The momentum indicators are all pointing in the right direction, although they’re not without some warning signs:
- The RSI is at 69 which suggests we’re getting a bit of strong bullish pressure, but it could also mean we’re due for some consolidation soon
- The immediate resistance level is $1.1737, then $1.1789
- If we do see any kind of pullback, watch for firm support to kick in just below $1.1644
Trade Idea: If you’re feeling brave, consider buying into a pullback near $1.1675, targeting $1.1735. Just make sure to set a stop-loss below $1.1640.
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