EUR/USD Technical Outlook: At Crossroads

US Dollar, Euro, EUR/USD – Technical Outlook:

• EUR/USD has been struggling to extend gains in recent days.
• The recent price action reinforces a range view in the short term.
• What are the signposts to watch?

EUR/USD TECHNICAL FORECAST – NEUTRAL

The Euro’s failure to extend gains against the US dollar following data last week that showed the dip in US inflation reinforcesthe near-term range outlookfor the single currency.

EUR/USD hasn’t been able to capitalize on last week’s gains following the rise above stiff resistance at the May 2022 high of 1.0786, coinciding with a slightly upward-sloping trendline from 2017. Over the past few days, it has held within the daily range high/low range of 12 January.

EUR/USD Daily Chart

Chart Created Using TradingView

In general, the lack of follow-through price action after a technical break can be viewed as suspect. It can either be a false breakout or a case of lagged rise. In this regard, the resistance-turned-support at 1.0786 is crucial. A fall below the support would raise the odds of a false breakout, while a rebound from the support could raise the chance of a further rise in EUR/USD. The latter case could turn out to be a bullish flag/pennant formation.

EUR/USD Weekly Chart

Chart Created Using TradingView

Any fall below 1.0786 could open the door toward quite a strong cushion at the early-January low of 1.0482. Furthermore, a break below 1.0482 would confirm that the upward pressure had faded somewhat, which could extend toward the 200-day moving average (now at about 1.0300). On the other hand, a decisive rise above last week’s high of 1.0867 could pave the way toward the 200-week moving average (now at about 1.1225) – a crucial barrier for the medium-term outlook.

— Written by Manish Jaradi, Strategist for DailyFX.com