Technical Analysis

EUR/USD began the week on a positive note, rising 0.2% within a narrow 1.0266-1.0292 range as the dollar eased and Asian equity markets advanced. Traders are bracing for a volatile week, with German PPI and an ECB policy debate setting the stage for eurozone developments, while U.S. markets focus on President Trump’s inauguration and the potential impact of over 200 anticipated executive actions. ECB official Isabel Schnabel’s comments on the pace of rate cuts have added complexity to the euro’s outlook, as the ECB navigates monetary policy challenges. Technically, EUR/USD remains trapped within a consolidative pattern. Resistance is seen at 1.0354, last Wednesday’s high, and 1.0437, the January 6 peak for 2025. Support levels include 1.0195, a critical Fibonacci retracement, and 1.0177, the 2025 base. Neutral daily momentum studies and easing Bollinger bands suggest limited directional bias, while coiling moving averages indicate consolidation. Bulls need a decisive close above 1.0437 to establish upward momentum, while bears will aim to push the pair below 1.0195 to target deeper support levels. Key catalysts for EUR/USD this week include U.S. and eurozone data and Trump’s policy agenda. Option expiries at 1.0250 (€657 million) and 1.0300 (€2.255 billion) could influence near-term price action. Bulls will need favorable economic data or dovish Fed sentiment to challenge resistance levels, while weak eurozone data or aggressive U.S. policy shifts could send EUR/USD lower. For now, the pair remains in a holding pattern, with upcoming events likely to determine its next move.

GBP/USD traded lower on Thursday, slipping to 1.2176 before recovering to 1.2260 after dovish remarks from Fed Governor Waller lent support. Earlier, soft UK GDP and output data exacerbated concerns over the UK economy’s fragility, while mixed U.S. retail sales and claims data tempered Treasury and gilt yield rises. The pound’s decline from its recent highs reflects a growing divergence in rate expectations between the BoE and the Fed, with markets pricing in UK rate cuts in February amid sustained U.S. yield advantages. Technical indicators suggest GBP/USD remains under bearish pressure. Resistance is seen at 1.2260, Thursday’s high, with further barriers at 1.2320 (falling 10-day moving average) and 1.2455 (50% Fibonacci retracement of the 1.2811-1.21 drop). Support lies at 1.2167 (lower 30-day Bollinger Band), 1.2140 (January 14 low), and the critical 1.21 level. A sustained break below 1.21 would open the door for a move toward late-2023 lows near 1.20 and early-March 2023 lows at 1.18, as bearish momentum accelerates. Focus shifts to upcoming UK and U.S. economic data. UK retail sales on Friday will provide insights into domestic consumption, while U.S. industrial production, capacity utilization, and manufacturing output will shed light on Fed policy outlooks. Any signs of further UK economic weakness or robust U.S. data could deepen GBP/USD’s losses, particularly as fiscal concerns and the BoE’s dovish trajectory weigh on sentiment. Without a significant shift in market dynamics, sterling is likely to remain on the defensive, with downside risks dominating.