- The bullish rebound movements of the EUR/USD culminated in a test of the resistance level of 1.0481, its highest in four months, including the exposure of the EUR/USD pair to profit-taking operations with losses to the 1.0280 support level at the time of writing the analysis.
- The performance confirms what we said recently that the currency pair may be exposed to profit-taking at any time.
- The US dollar still has strength factors and the euro faces a bleak future as long as the Russian-Ukrainian war continues.
The euro rose to its highest level since July 1 on Tuesday, further gains all the way to 1.10 cannot be ruled out according to a major European bank. In this regard, analysts at DNB - the Denmark-based lender and investment banking provider - say that recent moves in the forex foreign exchange market indicate that "the dollar's rally is nearing its end". The EUR/USD exchange rate reached as high as 1.0477 on Tuesday amid a sustained loss in the dollar, which was triggered by the release of lower-than-expected US inflation data last Thursday.
The gains have already put the pair within touching distance of 1.05 which our next weekly forecast identified as a potential target in the near-term time frame. EUR/USD rose 3.7% last week and is already up 1.10% this week as investors bet the Fed will slow the rate-raising cycle as US inflation shows signs of peaking. Dollar peaks indicate EUR/USD bottoms are now on the chart and DNB says the risk is that the EUR/USD won't trade as low as 0.95 in the next three months, which was their three-month forecast for the pair.
The euro's recovery against the dollar was sharp, most likely as a result of the large liquidation of "long" dollar trades involving investors looking to take profits from the dollar's multi-month rally.
“The question is how far the EUR/USD can trade higher than this. This, in turn, we believe depends mostly on expectations of risk appetite. And if it continues to improve, the euro is likely to rise against the dollar more than here, and could easily reach 1.10 or higher in three months,” stated DNB analysts.
Global stock markets are on a “Fed pivot” wave and are recovering as investors look to 2023 when the Fed is expected to end its hiking cycle. Risks to the outlook include a sharper-than-expected US recession, which is usually expected to support the safe-haven dollar. On the other hand, if global stock markets fall sharply as the US economy approaches recession, while the Fed continues to raise interest rates to combat high inflation, the EUR/USD is likely to fall below parity again.
EUR/USD Forecast
Since the price of the EUR/USD currency pair broke through the resistance of 1.0400. I noticed that the currency pair may be exposed to profit-taking operations at any time. These gains, according to the performance on the daily chart, moved the technical indicators toward overbought levels. The currency pair will not abandon its path without moving toward the support levels of 1.0230 and 1.0100, respectively. I still prefer to sell EURUSD from every bullish level.
On the other hand, the stability of the Euro-dollar will remain above the 1.0400 resistance, motivating the bulls to dominate. The EUR/USD will be affected today by the announcement of US retail sales figures and statements by European Central Bank Governor Lagarde.
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