EUR/USD may reach a two-month high of 1.1804, with the 14-day Relative Strength Index at 67.47, showing upward momentum. Primary support is at the nine-day EMA of 1.1715.
The pair trades around 1.1740 on Thursday, staying firm after small losses. A bullish bias strengthens as it trends within an ascending channel pattern supported by nine- and 50-day EMAs.
Rising RSI and Potential Corrections
The RSI’s proximity to the overbought threshold suggests strong upside potential, with a move above 70 poised to trigger short-term downward corrections. Breaking the two-month high barrier could lead EUR/USD towards 1.1918.
Immediate support is near the nine-day EMA, followed by 1.1700 and then 1.1690, the ascending channel’s lower limit. A breakdown here could pressure the pair towards testing the 50-day EMA at 1.1644 and a three-week low of 1.1589.
In currency dynamics, the Euro sees shifts against major currencies, notably strong against the New Zealand Dollar. Variations in percentage change exemplify the currency’s fluctuating strength adapting to broader market movements.
EUR/USD’s trading stability is impacted by upcoming ECB policy announcements and US CPI data. The Bank of England’s rate decisions and US inflation reports play critical roles in shaping market direction.
The Impact of US Inflation Data and ECB Policy
Based on the current technical setup and recent events, we see a clear bullish bias for EUR/USD. The US inflation data for November, which we saw come in slightly below expectations at 3.0%, has weakened the US Dollar and provides a tailwind for the pair. This fundamental development supports the ongoing momentum within the ascending channel.
Derivative traders should consider the potential for a test of the 1.1804 high in the coming sessions. Buying call options with strike prices near 1.1800 or 1.1850 could capitalize on this expected move, especially as the RSI indicates strong momentum. However, we are also mindful that an RSI move above 70 could signal that the pair is overbought, prompting a brief correction.
The European Central Bank’s decision to hold rates today was expected, but their commentary was more hawkish than anticipated, suggesting rate cuts in 2026 may be slower to materialize. This reinforces the Euro’s fundamental strength against the dollar. We also note that speculative net short positions on the Euro have decreased by over 15% in the last month, according to recent CFTC data, which shows sentiment is shifting.
Looking further ahead, a sustained break above the 1.1820 resistance zone could bring the June 2021 high of 1.1918 into focus. We have not seen prices at that level for over four years, and reaching it would mark a significant shift in the long-term trend. The economic conditions of mid-2021 were vastly different, driven by post-pandemic recovery rather than the current stable inflation environment.
To manage risk, we are watching the nine-day EMA at 1.1715 as the first critical support level. A decisive break below this, and the psychological 1.1700 mark, would challenge the bullish outlook. Traders could consider protective put options with a strike price below 1.1690 to hedge against any sharp reversal in sentiment.
