CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure. CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure.

EUR/USD technical analysis: further gains likely after breach of $1.20

This week’s advance by EUR/USD to above the psychologically-important $1.20 mark makes a further advance more likely.

EUR/USD broke this week above the psychologically important $1.20 level for the first time since May 2018, extending the advance that has lifted the pair from a low just above $1.06 in little more than eight months. With this upward momentum still in place, there is now a possibility that its underlying strength could lift it still more, with the high just above $1.25 touched in February 2018 a reasonable long-term target.

EUR/USD price chart, daily time frame (3 May 2017 – 2 December 2020)

As the chart above shows, EUR/USD is not yet overbought, with the 14-day relative strength index, or RSI, still below the 70 level that implies an overbought market. Moreover, any short-term downside is likely to be limited by the 20-day moving average (DMA) at $1.188, with the 50-DMA and the 100-DMA just below $1.18 providing further support ahead of last month’s low just above $1.16.

From a fundamental perspective, there is a fly in the ointment: the European Central Bank has indicated previously that it does not want EUR/USD above $1.20 for fear of damaging EU exports to the US and because it would represent a tightening of monetary policy at a time when policy should be loose to help the EU economy recover from the downturn caused by the coronavirus pandemic.

However, more recently, the European Central Bank (ECB) has indicated that it regards the euro’s levels against a range of currencies as more important than just its exchange rate against the US dollar so it might not intervene in the markets – even verbally – to attempt to weaken it as some euro bulls fear.

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

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