DXY and EUR/USD: Outlook and Technical Analysis

The US Dollar Index (DXY) has started this week with a downward trend, setting the stage for what is anticipated to be a busy week for economic data. Market participants are adjusting their positions ahead of a series of significant reports, culminating with the Non-Farm Payroll (NFP) jobs report to be released on Friday.

One factor influencing the DXY's current position is a noted shift in its rate advantage. During the recent holiday period, U.S. Treasury yields remained steady, while interest rates in Germany, which serve as the Eurozone benchmark, experienced a slight uptick.

EUR/USD Rises Amidst Data Expectations

The EUR/USD pair is experiencing a bounce back after a recent selloff that pushed it down to around 1.02225. However, the potential for the Euro to reach parity with the U.S. Dollar in 2025 remains a possibility due to ongoing policy divergence between the U.S. and Eurozone.

For traders, a move toward parity could offer attractive buying opportunities. Historically, significant movements toward parity or dips below it have often been temporary, with strong purchasing activity following those lows. The question now is whether this historical trend will repeat itself in the current market context.

As for immediate outlooks, all eyes are on upcoming German inflation data expected to be released later today. Predictions suggest a rise in Germany’s inflation rate to 2.4% annually in December, up from 2.2% in November. A higher than expected inflation reading could push EUR/USD towards the 1.0400 resistance level; however, this may not be sustainable in the long term. Given the bearish tendencies facing EUR/USD and an array of data scheduled for release this week, we may see an early week rebound followed by a selloff.

Technical Analysis

EUR/USD Performance

The bullish momentum for EUR/USD has been evident since Friday, where a positive candle close was noted. On the daily chart, the trend is still bearish unless the pair manages to close above the 1.0430 level. Until that break occurs, fresh lows remain a strong possibility. However, if EUR/USD does break above 1.0430, it could be on course to meet long-term resistance around 1.0500.

This scenario could provide a more favorable risk-to-reward ratio for potential short positions; nevertheless, breaking above the 1.0430 level would suggest a change in market direction, increasing the likelihood of further price rises.

The coming week is pivotal for the EUR/USD, with the DXY likely playing a central role in shaping any movements.

US Dollar Index (DXY) Analysis

The daily chart for the DXY presents an interesting picture. Recent selloffs have pushed the index close to a critical confluence. The index approached an ascending trendline on the daily chart, having recently bounced off a support level at 108.64.

The next few days are crucial. A break of this trendline may trigger a short-term downward correction in the index, potentially reaching 108.00 or even 107.00. Conversely, a rebound from the support could lead to new highs above the 110.00 mark.

The US Dollar's overall narrative remains one of strength. Comments from Federal Reserve officials highlight concerns over rising inflation, which could shift focus back to price pressures and support the USD throughout the medium term.

Moreover, speculations around the upcoming presidential inauguration on January 21 could further impact USD movements. Two possible scenarios could unfold: a continued weakening of USD before buying pressure returns ahead of the inauguration, or the USD maintaining strength until the event, only to face selling pressure if promises made during the campaign do not materialize.

Support and Resistance Levels

EUR/USD Levels:

Support:

• 1.0293
• 1.0222
• 1.0000

Resistance:

• 1.0430
• 1.0500
• 1.0535

DXY Levels:

Support:

• 108.64
• 108.00
• 107.60

Resistance:

• 109.00
• 109.52
• 110.00

DXY, EUR/USD, forecast