EUR/USD Sturdy Support at 1.08 and Seasonals could Provide Hope for Bulls
Whilst there is a possibility seasonal factors and the tough 1.08 level could push EUR/USD higher in the short-term, analysts see the Fed as holding the key to the longer-term outlook for the pair.
After finding support in the 1.08’s EUR/USD is still positioned to chug higher over the coming days as minimal data and the typical Christmas ‘effect’ favours potential short-term dollar weakness.
Looking ahead, however, the EUR/USD’s newfound key support level of 1.08 may fail if the FOMC hints its rate hike trajectory for 2016 is more aggressive than currently priced by markets, but for now the current support level will keep traders nervous on pushing the exchange rate lower.
'Pacing' about
The question for the euro to dollar exchange rate over 2016 will be the pace of subsequent interest rate rises.
FOMC Chair Yellen's post-rate-hike comments offered little concrete guidance.
Markets are expecting four hikes in 2016, but as of now, only two further increases are fully priced into the money-market futures.
Therefore, there exists a certain adjustment risk in the medium term in the event that the growth and inflation figures surprise to the upside.
On the other hand, FOMC officials, especially Chair Yellen, have reiterated that further rate hikes will be “gradual increases” and greatly dependent on key inflation levels, as well as the general health and strength of the US economy.
So in 2016, US economic data will be even more important to assess than it was in 2015.
There is little data scheduled to come out from the US and Europe today; thus, the week before Christmas ends on a relatively quiet note.
Data released on Friday will be second-tier, so whether readings are favourable or unfavourable,
they will have limited impact, if any.
EUR/USD Outlook: Support at 1.08 is Key
Where next for the euro/dollar from a technical perspective?
Commerzbank's technical strategist Karen Jones notes, “EUR/USD has reverted to support at 1.0819/1.0796, this band of support is quite pivotal, it represents the May low, the July low, the 7th December low and the 20- day ma and a break down through here is likely to trigger another leg lower to the 1.0523 recent low (favoured).
“Currently we suspect that the 20-day ma will hold the initial test – but only temporarily.
“The market recently executed a key day reversal from 1.1060 and this together with the 200-day ma at 1.1039 should act as an effective near term ceiling.
“Key resistance remains the 1.1193/95 2014-2015 downtrend and 55-week ma and we view the market as bearish while capped here.”
“[Our current position is] shorts from 1.1060 partially covered 1.0857.
“[Our recommended trade is], for the remainder, lower stops to 1.1000. Looking to exit the remainder 1.0800.”
