EUR/USD Technical Outlook: Minor Setback on Cards？

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

EUR/USD SHORT-TERM TECHNICAL FORECAST – NEUTRAL

The upward momentum continues to be supportive as the Euro flirts with some tough resistance against the US dollar ahead of key central bank meetings this week, including the US Federal Reserve, the European Central Bank (ECB), and the Bank of England (BoE).

From a short-term perspective, EUR/USD hasnt been able to much progress in recent days as it has run into pretty solid resistance around 1.0900, including the 89-week moving average and a slightly upward-sloping trendline from 2017,as highlighted in the previous update. Overbought conditions and a negative momentum divergence on the daily and weekly charts (softening Stochastics as the spot has made new highs) raise the odds of a pause/minor setback in the near term.

EUR/USD Weekly Chart

However, the rally since late 2022 appears to have legs and any consolidation could be short-lived. As the daily chart shows, the steepening slope of a rising channel from November raises the odds that the uptrend is getting established. Moreover, the rise above the 200-day moving average in December has confirmed that the downward pressure has reversed in the near term. Any break above the ceiling around 1.0900 could open the door toward the 200-week moving average (now at about 1.1225).

On the downside, one of the first signposts to watch would be the immediate floor at the December high of 1.0735. Any fall below could signal a deeper setback toward the early-January low of 1.0482. A break below 1.0482 would confirm that the upward pressure had faded somewhat, potentially paving the way toward a strong cushion on the 200-day moving average (now at about 1.0310).

EUR/USD Daily Chart

Key focus is on central bank meetings this week. While the ECB and BoE are expected to continue hiking into 2Q, the futures market is pricing in just one more rate hike by the Fed beyond the Feb. 1 quarter-point hike. Recent comments suggest Fed officials have become comfortable with slowing the pace of hikes, in line with the recentinflationprints. The market will be closely watching whether the Fed signals an end of the tightening cycle or chooses to keep rates restrictive for some time with incoming data to provide further guidance.