The Euro has rallied nearly 3% off its yearly lows, with EUR/USD signaling recovery potential as bulls push toward critical resistance levels ahead of the year’s close. While the broader trend remains bearish, near-term price action suggests the possibility of a more substantial rebound.
Key Levels to Watch
- Resistance: Immediate resistance is clustered between 1.0670–1.0718, defined by the 38.2% Fibonacci retracement of the yearly range and the November high-week close. A breakout above this zone could signal a more significant trend reversal, with further targets at 1.0777 and 1.0877.
- Support: Initial support lies at 1.0420, backed by the key level at 1.0352, which aligns with the 2016 low. A decisive weekly close below these thresholds would suggest a resumption of the downtrend, targeting the 1.02 handle.
Technical Overview
Last month’s steep decline brought EUR/USD into a major support zone, where the pair has since rebounded. The rally off this base has bulls eyeing resistance around 1.0670–1.0718, a critical pivot zone for assessing whether a larger recovery is underway.
Despite the recent rebound, bearish momentum persists in the broader outlook. A weekly close above the median line at 1.0670–1.0718 would be necessary to shift sentiment toward a potential trend reversal. Failure to break higher would likely keep EUR/USD vulnerable to renewed downside pressure.
Upcoming Market Catalysts
The coming week is packed with significant event risks that could shape EUR/USD’s trajectory:
- US Inflation Data (CPI on Wednesday): The inflation report has the potential to jolt markets, influencing expectations for the Federal Reserve’s policy path. A stronger-than-expected reading could weigh on EUR/USD, while a softer print might support the recovery.
- ECB Rate Decision (Thursday): The European Central Bank is expected to announce a 25-basis-point rate cut. Traders will scrutinize the ECB’s forward guidance for clues on its policy stance, which could impact the Euro’s near-term direction.
Trading Strategy
The immediate focus remains on the range between support at 1.0420 and resistance at 1.0670–1.0718. Traders should consider reducing long exposure or tightening stops if the pair approaches resistance, as this zone could trigger a significant reaction.
For bearish scenarios, a breakdown below 1.0420 would reinforce the broader downtrend, targeting 1.0352 and potentially lower levels near the 1.02 handle. Conversely, a sustained breakout above 1.0718 would signal the possibility of a more extended recovery, with bulls targeting 1.0777 and 1.0877.
Bottom Line
EUR/USD’s recovery from yearly lows brings key resistance levels into focus as event risks loom large. Traders should remain flexible as US inflation data and the ECB rate decision could spark heightened volatility. A breakout from the current range will likely dictate the pair’s direction heading into the year’s end.
