EURUSD The euro returns to test key support near $1.12

The EURUSD continued its slide yesterday, falling to its lowest level since June 2020 at $1.12. The euro has been weighed down in recent days by the tightening of health restrictions in Europe, which will inevitably have an impact on the European economy, and strong U.S. economic data reinforces the outlook for higher rates.

Indeed, recent U.S. data has been rather better than expected, so much so that the Citigroup Economic Surprise Index has reached its highest level since June. In addition, the PCE index, the Fed's preferred inflation gauge, rose 5% year-over-year in October, and 4.2% excluding food and energy, the highest inflation in 30 years, and weekly jobless claims fell to 199,000, the lowest level in 50 years.

These positive economic surprises and very high inflation are naturally fuelling investor expectations of a Fed rate hike. The first-rate hike is now expected in May.

European health developments and upcoming economic releases will continue to be key for the EURUSD. The weekend is expected to be relatively quiet as no major releases are expected and US traders will be away on Thursday for Thanksgiving and will leave for the weekend early Friday at 18:00 CET.

From a technical perspective, the EURUSD appears to be in a short-term descending wedge pattern, indicating bullish pressure that remains minor but is becoming increasingly important. The daily RSI is showing the same pattern as it is leveling out with slight positive sloping.

Traders could therefore be taking advantage of the return of the EURUSD near its June 2020 low at around $1.1168 to lighten their short exposure and/or increase their bullish bets.

 (Chart Source: Tradingview 25.11.2021)

A breakout from the top of the Bollinger Bands and a rebound of the RSI above 50 would be signaled in favor of a retracement of part of the euro's decline. The first resistance to watch would be at $1.1422.

If the euro continues to fall, the next major support to watch would be at $1.10.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.