Last Updated on January 14, 2021
EURUSD Forex Forecast
This week, we see the Euro losing grip of its dominance over the Greenback, following a series of macroeconomic news events, a shift in market structure on both the EURUSD charts and the USD Index (DXY) across CFD trading broker sites such as RaceOption.
Let’s dive into the details, revealing the chart patterns and likelihood of a trend continuation/reversal.
EURO and US News
The Greenback resumed its bearish decline, following a retreat of US yields this week Wednesday as traders and investors speculate that the price may continue the Q4 2020 bearish trend.
Coming from a ten months peak, the benchmark 10YR Treasury yields US10YT slumped by seven basis points this week on Tuesday, snuffing out air from the USD after rising for three days in a row.
The Greenback made a sharp fall against the Euro more than it has in a month and fell a little over 1% against the GBP, stimulated by the BOE governor opposing talks on negative rates.
According to analysts at ANZ, it appears that we may be at an end in the upward correction phase of the USD Index as the bears are already increasing their grip to the downside.
However, as US bonds set the pace for interest rate markets and equities, setting up the stage for risk appetite in US asset markets, we may see a prolonged decline in the Greenback.
Analysts also point out that the sharp increase in US yield this year was propelled by a massive selloff in the bond market, ignited by US Democrats’ victory of the US congress at Georgia elections.
Investors’ expectations towards government borrowing of huge capitals to fund stimulus and higher US rates may increase demand for the USD. However, officials from the US Federal Reserve comment on support towards monetary policies and increased demand for a 38 billion USD 10-year auction, which may be negative for the Greenback.
According to Chris Weston, Pepperstone Broker’s head of research at Melbourne, lower yields are still expected on the short-selling dollar as the bears increase their hold.
Fed President Esther George of Kansas City stated that she does not foresee the Fed reacting on inflation higher than its 2% target.
EUR vs. USD Long-term Overview: Exhausted Bullish Swing
EURUSD Technical Analysis
A regular bearish divergence on the monthly-TF should be completed after the close of January, signaling a complete price reversal or a correction of the upward price surge.
Being risk-averse, we’ll preferably go for the correction scenario where the EURUSD exchange rate can find support around the 1.8808 and 1.1621 support.
Weekly Chart Bullish
Weekly Resistance Level: 1.23496
Weekly Support Level: 1.19207, 1.20114, 1.16124
Looking at the chart above, we observe a strong comeback of the hibernating bears that have been silent for ten weeks.
A buildup of bearish divergence and collapse of the 1.21931 support should bring the EURUSD exchange rate to the MA20 (Weekly).
Daily Chart Projections: Bullish
Daily Resistance Level: 1.23096
Daily Support Level: 1.21299, 1.20591
After setting a series of higher peaks on Dec 17 ’20 and Jan 06 ’21, the Euro vs. US Dollar finally starts a price correction from the bearish divergence chart structures, in addition to falling below the twenty-day Moving Average and into the oversold area.
The entry of the oversold zone, coming from the overbought area, signals the up move’s weakness, meaning we may have to get ready for a switch in trend polarity.
As price approaches the MA10 on the weekly time frame, we expect a short term upspring in the price into the last day of the week. A further weakness of the USD across different currencies could also be positive for the Euro.
The regular bearish divergence chart setups on the monthly, weekly, and daily time frames are significant for a midterm retreat of the gains from the last two months. We should observe that this could be a correction and not expect a sharp price slump.
Conclusion and Weekly Price Objectives
The stronger GBP – Great British pound in the short and midterm pose further weakness to the Euro. However, we should look out for long-term recovery in the Euro as the monthly time frames hint.
Considering that the EURUSD is the most traded FX pair, holding a higher volume in the USD Index, we should anticipate a longer-term weakness of the Greenback. Meanwhile, the EURUSD should stay bearish in the short term, as COVID-19 threats persist.