EUR/USD Forecast: Euro could have a hard time finding direction

EUR/USD has gone into a consolidation phase at around 1.0500 early Tuesday after having closed modestly lower on Monday. The pair’s near-term technical outlook doesn’t show a buildup of momentum in either direction and market participants will keep a close eye on risk mood in the absence of high-impact macroeconomic data releases.
On Monday, the upbeat ISM Services PMI survey, which showed that the economic activity in the service sector unexpectedly expanded at an accelerating pace in November, provided a boost to the US Dollar and forced EUR/USD to turn south. Nevertheless, markets are still pricing in a nearly 80% probability of a 50 basis points (bps) Federal Reserve rate hike in December, suggesting that the ISM data didn’t have a significant impact on rate hike bets.

EUR/USD has started to move sideways below 1.0500 following Monday’s decline.

European Central Bank (ECB) policymakers continue to offer mixed messages regarding the rate outlook. ECB policymaker François Villeroy de Galhau said over the weekend that he was in favour of a 50 basis points rate hike in December. Similarly, ECB Governing Council member Gabriel Makhlouf argued that they were not yet in restrictive territory but added that he was anticipating the next rate hike to be 50 bps. On the other hand, ECB Chief Economist Phillip Lane adopted a relatively hawkish tone by saying that it was unclear whether inflation has peaked and noted that he couldn’t exclude higher inflation early next year.

The technical picture points to a neutral outlook in the near term.

The ECB’s ‘quiet period’ will start on Thursday and the Euro could have a hard time gathering strength in case policymakers continue to voice support for a 50 bps hike next week. Meanwhile, US stock index futures trade flat early Tuesday. If Wall Street’s main indexes manage to stage a rebound after the opening bell, the improving market mood could help EUR/USD hold its ground. On the flip side, another selloff in US stocks is likely to provide a boost to the US Dollar and weigh on the pair. Nevertheless, ahead of next week’s highly anticipated Fed and ECB meetings, investors could refrain from taking large positions.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) on the four-hour chart is moving sideways near 50, revealing a lack of directional momentum.

1.0500 (psychological level, Fibonacci 23.6% retracement of the latest downtrend) aligns as a key pivot point level. If that level is confirmed as resistance, the pair could extend its downward correction toward 1.0450 (50-period Simple Moving Average (SMA), Fibonaddi 38.2% retracement) and 1.0430 (Fibonacci 50% retracement).

On the upside, interim resistance is located at 1.0520 (20-period SMA) before 1.0580 (static level) and 1.0600 (psychological level, static level).