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EUR/USD: big picture still the same

Believe it or not, January is about to come to an end. Back in December, the ECB extended the duration of its QE stimulus package while the Fed raised interest rates. The divergence between monetary policies in the two regions thus expanded further, and calls for EUR/USD parity increased. But despite all the doom and gloom about the euro, the currency is holding up relatively well against the US dollar. Its stay beneath 1.05 was short-lived. It has managed to turn positive for the month and thus year after climbing back above its 2017 opening price of around 1.0518 in the first week of the year. As long as the EUR/USD remains above this level, the short-term bias remains bullish – speaking objectively.

However, the EUR/USD’s fundamental outlook remains bleak. While the latest US growth estimate was admittedly disappointing, it is worth remembering that Donald Trump’s ambitious fiscal plans point to stronger growth in the coming quarters. Market participants may not pay much attention to the past if Trump keeps up his promises. To be fair, he has hit the ground running, making a number of executive orders in his first week as the President. So, hopes that he will boost economic growth are alive and this may keep the dollar bid.

The long-term technical outlook for the EUR/USD likewise remains bearish. No major resistance levels have been broken yet. Imagine a yearly candlestick pattern is being formed. It could be that the EUR/USD is currently residing in the upper shadow area of its yearly candle, which will complete at the end of this year. Thus, the real selling pressure could start if/when price moves and stays below the 1.05 handle. That is when the yearly range will probably start to expand as price most likely heads towards – and potentially beyond – parity. So, with that in mind, it is always worth remembering that a major high could be about to form in the coming weeks or months on the EUR/USD.

Conversely, if the EUR/USD starts to break above more resistance levels then the above bearish view will become less appealing. Some of the short-term key resistance levels are at 1.0710 and 1.0870, though more significant levels are at 1.1300 and 1.1500. If and when the EUR/USD moves above these levels then the bearish outlook would become well and truly over. For the time being though, I am still giving the bears the benefit of the doubt. 

Source: eSignal and FOREX.com

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