EUR/USD faces downward pressures as risk-off mood prevails, 20-day SMA threatened

• The EUR/USD trades are nearing the 1.0950 mark, reflecting a notable 0.80% decline.
• The US dollar recovered significantly as yields rose, strengthening its position against its peers.
• December’s key labor market figures from the US will define short-term forex market trends.

In Tuesday’s session, the Euro (EUR) against the US Dollar (USD) exhibited strong downward movements, trading roughly around 1.0950. The primary driver of this movement includes a considerable threat to its 20-day SMA, along with a significant risk-off mood pervading the market, which redirected flows toward the Greenback.

The US dollar started 2024 strongly and the US economy remains robust, with Q4 growth propped above the trend. There’s anticipation that if the optimistic US labor market data continues in Q1, market expectations will shift from an easing cycle, positively impacting the dollar and cooling down dovish bets, which recently made it suffer significant selling pressure. On the other hand, the Eurozone’s economy seems to face more turbulence, with a contracting money supply and a weak manufacturing sector.

Regarding their monetary policies, the trend in both economies indicates a divergence between the approaches from the Federal Reserve and European Central Bank (ECB), with an increased possibility of rate cuts from the ECB to stimulate the economy while the US may hold a little longer the restrictive rates. As for now, investors have priced in six rate cuts for 2024 from the European bank, while for its American peer markets are starting to back off from their initial predictions of 160 bps of easing.

In the coming week, key labor statistics are set to be disclosed by the US, encompassing data on Nonfarm Payrolls, Wage Inflation, and the Unemployment Rate recorded for the month of December. Other minor data include JOLT’s Job opening figures and the Automatic Data Processing Inc. employment change, also from the last month of 2023.

EUR/USD levels to watch

The daily chart suggests that the pair has a neutral to bearish tone for now. The Relative Strength Index (RSI), despite being in positive territory, is indicating a negative slope, suggesting slowing momentum and hints at a possible reversal or consolidation ahead, further reaffirmed by the decreasing green bars from the Moving Average Convergence Divergence (MACD).

However, the broader technical landscape tells a different story. The pair remaining above the 20, 100, and 200-day Simple Moving Averages (SMAs) indicates that, in the broader context, the bulls are still in control. Despite the short-term negative outlook, the underlying buying momentum may still hold the reins, preventing any deep falls.

EUR/USD daily chart