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 US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. See our Summary Conflicts Policy, available on our website.
Start trading forex today
Trade the largest and most volatile financial market in the world.
- Spreads start at just 0.8 pips on EUR/USD
- Analyze market movements with our essential selection of charts
- Speculate from a range of platforms, including on mobile
Live prices on the most popular forex markets