Weakening US Dollar and ECB Outlook Impact EUR/USD
The US Dollar faces continued pressure as Treasury yields decline, leading to a weakened Greenback across the board. The EUR/USD maintains a bullish bias, holding above 1.0900 and posting its highest daily close in three months. The ongoing decline in Treasury yields contributes to the Dollar’s vulnerability, with the US Dollar Index (DXY) recording its lowest daily close since August, below 103.30.
Lagarde’s Caution and New Home Sales Data
ECB President Christine Lagarde anticipates prolonged economic weakness, emphasizing that growth is likely to remain subdued. Lagarde’s warnings, delivered at the European Parliament, coincide with a cautious outlook on inflation, which is expected to rise slightly in the coming months. In the US, New Home Sales data for October disappoints, falling to 679K compared to the anticipated 725K. The combination of weak economic indicators further contributes to the US Dollar’s challenges.
The Euro’s Bullish Momentum
The EUR/USD’s bullish momentum is sustained by technical factors and fundamental developments. Despite the daily chart showing the Relative Strength Index (RSI) at overbought levels, key Simple Moving Averages (SMAs) have turned upward. On the 4-hour chart, the pair remains above an uptrend line and the 20-SMA, supporting further gains. The short-term technical outlook indicates potential upward movement, with resistance at 1.0950 and further targets at 1.0970 and 1.1000.
Short-Term Outlook and Potential Corrections
While the EUR/USD’s short-term outlook remains positive, caution is advised as the RSI indicates overbought conditions. The 20-SMA on the 4-hour chart, currently at 1.0920, serves as a key support level. Sustaining levels above 1.0950 could lead to additional gains, while a slide under 1.0920 may weaken the short-term outlook. Corrections toward 1.0880 are seen as potential buying opportunities, maintaining an overall bullish tone until market focus shifts to the growth divergence between the US and the Eurozone.