EUR/USD is still trying to hold on to the 1.0500 resistance level, to confirm the bulls' control. Yesterday, it was subjected to selling operations that pushed it towards the support level 1.0443. From there it returned to the resistance level 1.0550, and settled around the level of 1.0490 at the time of writing the analysis.
What is expected for the euro-dollar?
Euro lows are visible in the rearview mirror and the next big move is likely to be higher, says NatWest Markets. In a currency research note for next year, the UK-based bank and global investment bank says peak fear over the eurozone's energy situation is now over.
The view confirms that for the euro, the energy crisis of 2022 dominated the fundamental picture and led its value to a multi-year low of $0.9536 in September. The main drivers of the EUR/USD exchange rate should continue to be seen primarily through the lens of the balance of payments and terms of trade shift driven by energy prices. The trade deficit worsened in 2022 as the cost of energy imports rose dramatically after Russia cut its gas exports to the region, leaving the region with a current account deficit for the first time in years.
This deterioration means that the value of the euro has become highly sensitive to global investor capital.
But looking ahead, NatWest expects that relative to the euro, the new trade deficit in the eurozone will be offset by positive net capital inflows. However, the downside risks of the assumptions lie in energy prices and a cold winter could lead to a sharp focus on the supply issue for investors once again.
A warm and windy autumn has helped the Eurozone increase gas supplies with the cost of gas also falling, but the region is entering a particularly cold snap in December, which could see consumption increase significantly. Accordingly, the analyst added, “The winter may be colder than average, but it is impossible to obtain that as a basic case. However, the assessments appear to include an unrealistically high probability of such a dangerous condition. “It is unlikely that the EUR/USD cyclical lows will be revisited in 2023,” he adds. And “the fall in the EUR/USD should also be curbed by rebalancing the central bank’s reserves.”
The strength of the US dollar during 2022 means that central banks will be required to rebalance retention rates, at the expense of the dollar and in favor of currencies such as the euro. Therefore, NatWest notes, this may mean that managers must sell dollars to buy other currencies in their reserves on each rise in the US dollar. Meanwhile, the dollar is expected to weaken over the coming months as the Fed's interest rate hike peaks, as well as global economic pessimism.
However, NatWest's forecasts for EUR/USD are relatively contained, set at 1.05 for the end of the first quarter, 1.06 for the end of the second quarter, 1.07 for the end of the third quarter and 1.08 for the end of the year.
EUR/USD forecast today:
- There is no change in my technical view of the performance of the EUR/USD currency pair.
- The currency pair still has the opportunity for an upward rebound as long as it is stable.
- Above the resistance 1.0400 it jumped towards the resistance level 1.0560.
- These gains are sufficient to push the technical indicators towards overbought levels.
- The pair is ready for profit-taking sales, which has happened.
I still adhere to this vision until now, as the factors of the strongest and continuous dollar strength. On the other hand, if selling operations move towards the support levels 1.0420 and 1.0330, respectively, the trend will start to change downwards. The euro-dollar will be affected today by the statements of European Central Governor Lagarde and the announcement of the number of US jobless claims.
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