EUR/USD looks at risk of further declines in the immediate future, but this contrasts with the quiet consensus building that the longer-term outlook may be improving.
“The major pair has finally broken down below the multi-year base from 2015, taking it to its lowest levels since 2003. Next key support comes in the form of a 1997 low at 1.0345, below which exposes an immediate drop to parity. At this point, any rallies should be very well capped, with only a break back above 1.0875 to compromise the bearish outlook,” say LMAX Exchange in a briefing to clients.
Scotiabank’s strategist Shaun Osborne is also bearish, seeing 1.0500 as a ceiling capping returns higher.
Osborne says, “intraday support at 1.0430,” and “while the EUR may not fall significantly—today—on a push under that point, loss of support here would suggest a retest (at least) of this week’s low (at 1.0345) in the next few days.”
The pair has recovered after showing extreme convergence with MACD, rising on five out of the last five days, however, the overall trend remains bearish and suggests more downside once the current recovery runs out of gas and rotates lower.
There is support from the S1 monthly pivot at 1.0303 and this level is likely to be difficult to breach.
We would want to see a break below the 1.0250 level for confirmation of a clear break below S1, with a target then at 1.01 and 1.00.
From a fundamental perspective, Scotia’s Osborne sees the Dollar as, “broadly well supported,” and “for EURUSD gains to remain constrained by wide/widening yield differentials.”
The Euro’s longer-term outlook tends to be more positive as its unremarkable but steady economic growth continues.
“We see the recovery gradually removing downside risks in the Eurozone.
“Together with the current account surplus, this will support the Euro.
“However, political risk remains a headache, with several elections next year, and will weigh on the euro,” said DNB’s Magne Ostnor.
Some analysts see the Euro's strength building in 2017 as the ECB begins discussing tapering of asset purchases from the middle of the year on.
CIBC is also bullish the Euro, based on the Eurozone’s rising Current Account surplus, which is likely to keep the currency well supported.
The Dollar, meanwhile, may grow so strong that the US authorities may try intervention to cap its excessive growth so as to support US exports.
Data to Watch this Week: the Euro
The main release for the single currency will be private sector Loans in November, on Thursday morning at 09.00 (GMT), this came out at 1.8% previously.
The release of loan's data is significant for the Eurozone as it is will show how well transmission of monetary policy is working.
The European Central Bank (ECB) will want to see an increase in loans as it will prove monetary stimulus is filtering into the real economy.
Also, out at 09.00 on Thursday 28 is Money Supply (M3), which the majority of analysts have forecast at an unchanged 4.4% rise in November.
Data to Watch this Week: the Dollar
Data for the Dollar kicks off with the S&P Case-Shiller House Price Index in October, at 14.00 (GMT) on Tuesday, December 27, which is forecast to rise by 0.5% month-on-month and 5.1% year-on-year.
Given some analysts are calling for a slowdown in US housing in 2017 any property-related releases may be the subject of more scrutiny than usual.
On Wednesday, December 28 we have more housing data, first the shape of MBA Mortgage Applications at 12.00 and then Pending Home Sales at 15.00, which is supposed to show a 0.5% rise month-on-month in November.
On Thursday, there is the Advanced Trade Balance in November at 13.30.
Also on Thursday at the same time are Jobless Claims for the week ending December 24, which are supposed to show a 277k rise.
EIA Crude Oil Stocks are released at 16.00 on Thursday and forecast fall to -0.3m barrels, in week ending December 23.
Finally, on Friday, Chicago PMI’s are released and expected to fall to 56.8 in December, at 14.45.