How Could it Affect EUR/USD?

Against the backdrop of the upbeat fourth-quarter US GDP report, a surprisingly stronger print will fuel speculations that the Fed will stick to its hawkish stance for a longer period. This, in turn, should prompt some near-term short-covering move around the US Dollar and drag the EUR/USD pair further away from a nine-month high touched earlier this week.

Conversely, weaker PCE data will cement expectations that the Fed will slow the pace of its policy-tightening cycle and lifts bets for a smaller 25 bps rate hike in February. This could exert downward pressure on the already weaker greenback. The market reaction, however, is likely to remain limited as the focus remains on the FOMC and ECB policy meetings next week.

Eren Sengezer, Editor at FXStreet, offers a brief technical outlook for the pair and writes: “EUR/USD broke below the ascending regression channel late Thursday. Although the pair returned within that channel during the Asian trading hours, it lost its recovery momentum and closed the last four-hour candle below the lower-limit. Furthermore, the pair now trades below the 20-period Simple Moving Average (SMA) and the Relative Strength Index (RSI) indicator stays slightly below 50, suggesting that buyers remain on the sidelines.”

Eren also outlines important technical levels to trade the EUR/USD pair: “On the downside, 1.0850 (static level, 50-period SMA) aligns as key support level. In case EUR/USD falls below that level and starts using it as resistance, it could continue to push lower toward the 1.0800/1.0790 area (psychological level, static level, 100-period SMA).”

“If EUR/USD rises above 1.0900 (20-period SMA, lower limit of the channel) and stabilizes there, it could extend its rebound toward 1.0930 (mid-point of the ascending channel, static level) and 1.0980 (former support, static level),” Eren adds further.