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EUR/USD upside prospects limited, although headed for test of 1.1480/90 resistance/pivot

  • EUR/USD is currently trading at 1.1470, rising in Asia as the dollar gives way, notably in USD/CNH.
  • EUR/USD to claim ground as dollar fundamentals worsen, although German data has worsened and many hurdles lie ahead for the euro.

EUR/USD is slightly higher in recent trade as the dollar fades, weakened by strength in the yuan with the People's Bank of China revaluing the onshore yuan, set at its strongest since July 2018 at 6.7560 against the last fix at 6.7909 while we await the release of the Chinese trade data. 

Specifically to the euro, the minutes of the ECB’s December meeting suggested that the ECB are likely to be very data dependent over the coming year or so and although the dollar has been weakening over worsening themes for the bulls,  the likelihood that the withdrawal of ECB policy stimulus this year is likely to be extremely cautious which should temper upside potential, analysts at Rabobank argued:

"In addition the likelihood that the forthcoming European parliamentary elections will draw focus back to populism could weigh on the EURinto the spring.  We thus see the potential for the recent recovery in EUR/USD to stall in the coming weeks and see scope for the currency pair to head back into its recent range."

Key German data up for grabs

For the week ahead, the most interesting release will be the first estimate for annual German GDP growth in 2018, which will also include a first 'guestimate' for growth in the fourth quarter." Latest data releases have dented hopes for a quick rebound of the German economy after a disappointing third quarter," as analysts at ING Bank argued. 

EUR/USD levels

  • Support levels: 1.1420 1.1385 1.1340
  • Resistance levels: 1.1500 1.1530 1.1570

The 200-day sma is a key upside resistance target around the 1.1625 area that reinforces making a confluence of the weekly chart's 100-week sma near 1.1613.  However, Valeria Bednarik, Chief Analyst at FXStreet argued that the EUR/USD pair tested and retreated from the 23.6% retracement of its 2018 decline, which reduces chances of a sustainable recovery ahead:

"In the daily chart, it's now trading a handful of pips below a flat 100 DMA, still above a mildly bullish 20 DMA currently at around 1.1410. Technical indicators in the mentioned chart, technical indicators have turned sharply lower within positive ground, now nearing their midlines, indicating an increasing risk of a bearish extension. Shorter term, and according to the 4 hours chart, technical indicators have also turned sharply lower, with the Momentum now pressuring its mid-line and the RSI already into negative ground at 44. In this last chart, the pair accelerated south after breaking below its 20 SMA, also a sign of mounting downward pressure."

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