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EUR/USD retraces large part of daily rally, edges lower toward 1.14

  • USD stages modest recovery in the second half of the day.
  • DXY stays in the red below 97.
  • Trading volume is likely to thin out toward the Christmas holiday.

The EUR/USD pair rallied to its highest level since early November at 1.1485 on Thursday as the greenback met a heavy selling pressure during the European trading hours. However, the pair struggled to preserve its momentum and erased a large part of its daily gains and was last seen trading at 1.1415, adding 0.35% on a daily basis.

Following yesterday's FOMC announcements, markets' fear over a possible economic slowdown in the U.S. due to the Fed's downplay of the potential negative impact of higher rates resurfaced and the greenback suffered losses against its rivals. The US Dollar Index fell to a monthly low at 96.20 to reflect the broad-based USD weakness. However, with T-bond yields recovering modestly in the NA session, the dollar gained traction and forced the pair to retrace its daily upsurge. At the moment, the DXY is still down 0.35% on a daily basis at 96.65.

Earlier today, the ECB announced that the current account surplus (seasonally adjusted) rose to €23 billion in October from €17.6 billion in September to provide an extra lift to the shared currency. On the other hand, today's data from the U.S. showed that the manufacturing sector in the Philadelphia area expanded at a slower pace than expected in December and weekly initial jobless claims rose to 214K in the week ending December 14.

Markets will be focused on the U.S. third-quarter GDP report on Friday. However, with investors getting ready to enjoy the Christmas break, the market reaction could stay relatively subdued.

Technical outlook by FXStreet analyst Yohay Elam

The 50 Simple Moving Average on the four-hour chart is crossing the 200 one, a bullish sign. The Relative Strength Index (RSI) is still below 70, thus not suffering from overbought conditions. Momentum remains strong. All in all, the bias is bullish.

1.1475, a mid-November high, was breached only temporarily and remains relevant. The round number of 1.1500 was the high point in November. 1.1550 and 1.1625 capped the pair earlier, serving as lower highs.

1.1440 was the high point on Wednesday. It is followed by 1.1430 which capped the euro/dollar pair earlier in December. 1.1405 and 1.1360 are next. 

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