EUR/USD Post-NFP Selloff Brings Test of December Low

US Dollar Outlook: EUR/USD

EUR/USD extends the decline following the stronger-than-expected US Non-Farm Payrolls (NFP) report to test the December low (1.0724), and the exchange rate may continue to give back the advance from the November low (1.0517) amid the failed attempt to trade back above the 50-Day SMA (1.0905).

EUR/USD Post-NFP Selloff Brings Test of December Low

The opening range for February is in focus as EUR/USD struggled to hold its ground since the start of the year, and the Relative Strength Index (RSI) may show the bearish momentum gathering pace as the recent selloff in the exchange rate pushes the oscillator towards oversold territory.

Join David Song for the Weekly Fundamental Market Outlook webinar. David provides a market overview and takes questions in real-time. Register Here

It seems as though market participants are pushing out expectations for a change in regime as the Federal Reserve tames speculation for a rate cut in March, and the European Central Bank (ECB) may follow a similar path to its US counterpart as the Governing Council insists that Euro Area ‘interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution’ to its one and only mandate for price stability.

Euro Economic Calendar

FOREX.com Economic Calendar

However, data prints coming out of the Euro Area may push the Governing Council to switch gears as the Retail Sales report is projected to show another 1.1% decline in December, and a dismal development may drag on EUR/USD as it fuels speculation for an imminent ECB rate cut.

At the same time, a better-than-expected Euro Area Retail Sales report may curb the recent weakness in EUR/USD as it raises the ECB’s scope to further combat inflation, and the Governing Council may stick to the sidelines at its next meeting on March 7 as President Christine Lagarde and Co. insist that ‘future decisions will ensure that our policy rates will be set at sufficiently restrictive levels for as long as necessary.’

Until then, speculation surrounding ECB and Fed policy may sway EUR/USD as both central banks appear to be at the end of their hiking-cycle, but failure to defend the December low (1.0724) may lead to a further decline in the exchange rate as it initiates a series of lower highs and lows.

With that said, EUR/USD may continue to give back the advance from the November low (1.0517) following the failed attempt to trade back above the 50-Day SMA (1.0905), and a move below 30 in the Relative Strength Index (RSI) is likely to be accompanied by a further decline in the exchange rate like the price action from last year.

EUR/USD Chart – Daily

Chart Prepared by David Song, Strategist; EUR/USD on TradingView

• EUR/USD tests the December low (1.0724) after failing to trade back above the 50-Day SMA (1.0905), with a break/close below the 1.0610 (38.2% Fibonacci retracement) to 1.0650 (78.6% Fibonacci retracement) area bringing the November low (1.0517) on the radar.
• Will keep a close eye on the Relative Strength Index (RSI) as it falls towards oversold territory, with a move below 30 in the oscillator likely to be accompanied by a further decline in EUR/USD like the price action from last year.
• Next area of interest comes in around the 2023 low (1.0448), but the RSI may show the bearish momentum abating if the oscillator continues to hold above oversold territory.
• Need a break/close above 1.0790 (61.8% Fibonacci retracement) to open up the 1.0870 (23.6% Fibonacci extension) to 1.0880 (23.6% Fibonacci extension) region, with a beach above the monthly high (1.0898) raising the scope for another run at the moving average.

Additional Market Outlooks

US Dollar Forecast: GBP/USD Vulnerable on Close Below 50-Day SMA

US Dollar Forecast: USD/JPY Bull Flag Under Threat with Fed on Tap

--- Written by David Song, Strategist

Follow on Twitter at @DavidJSong