EUR/USD on the Downside

 The US Dollar is Buffing Up

by Bogdan Giulvezan

The Euro is trying hard to hold back the US Dollar’s offensive but so far its failing and the pair is tumbling through support levels, despite worse than expected U.S. Retail Sales. According to last week’s data, sales made at retail levels declined -0.7%, although analysts expected the value to remain unchanged. The Core version of the Retail Sales report also declined -1.4%, while the forecast was -0.1%.

The US Dollar Index is moving up, approaching the resistance at 91.00 (currently trading at 90.88), which supports the idea of an extended drop for EUR/USD. With that in mind, let’s take a look at the events that may have a determining role in this week’s price action.

Key Events for the Week Ahead

Wednesday, January 20, President-Elect Biden will speak at the 59th Presidential Inauguration, in Washington DC. The exact time is not yet known and the event shouldn’t have a major impact on the currency markets but it’s always best to be prepared for surprise movements.

Thursday, January 21 at 12:45 pm GMT, The ECB will announce the Main Refinancing Rate, along with the Monetary Policy Statement, which outlines the reasons behind the rate decision but can also hold clues about the next rate change. Soon after, at 1:30 pm GMT, ECB President Lagarde will hold the usual press conference, which can trigger strong volatility, depending on the matters discussed and the President’s tone. Audience questions are expected, and this could create additional volatility.

The last day of the week will reveal information about Purchasing Managers’ Indexes (PMI), namely the European Manufacturing and Services PMIs, as well as the U.S. versions of the same reports. These are considered leading indicators of economic health and usually, numbers that exceed expectations give a boost to the respective currency. However, the impact is oftentimes limited.

Chart Analysis – EUR/USD

Since January 6, 2021, the bears have been in control of EUR/USD, which is currently trading very close to the support level located at 1.2060. The pair is also moving below a bearish trend line and below the 100 periods Exponential Moving Average on a four-hour chart, which favors the sellers and makes the entire picture bearish.

The Relative Strength Index is moving south without being oversold and the MACD lines are spreading apart, pointing down. These are also bearish signs, which add to the probability of a drop below the current support located at 1.2060.

If this scenario materializes and support is broken, the next target will become the major level at 1.2000, which may be reached relatively soon, considering that we don’t have any major levels between it and the current support.