Technical pullback of EURUSD may occur later this week

27 December 2023 153
Technical pullback of EURUSD may occur later this week

The EURUSD currency pair continues its upward movement. The quotes regularly update the highs for the last 5 months, but the growth rate has slowed down above the 1.1 level. Before the end of 2023, currency market participants may decide to fix some of their positions by selling euros and buying dollars. The technical picture indicates a high probability of such a scenario.

The fundamental backdrop for the European currency, despite its current strengthening, remains rather pessimistic. According to analysts polled by the Financial Times, the eurozone economy will rise 0.6% by the end of next year. The same GDP growth is expected in the region by the end of 2023. Consequently, the EU economy is likely to face stagnation in 2024, experts said.

Despite the projected upward dynamics of the EU’s GDP, it should be noted that expectations for this indicator have steadily deteriorated. The European Commission lowered its estimates of economic growth from 0.8% to 0.6%. Representatives of the European Central Bank revised their forecast downward from 1% to 0.8% for 2024. Only the experts of the International Monetary Fund expect the eurozone economy to grow by more than 1% next year (their forecast is 1.2%).

This situation may lead to an outflow of investors' capital from the euro and its allocation in more promising currencies. According to the British Center for Economic and Business Research, over the next 15 years the UK economy will develop faster than the GDP of the EU leaders — Germany and France. The growth of the French economy will be hampered by extremely high public debt, as well as high levels of taxation. In turn, Germany's GDP will increase slowly because of the crisis in the country's industrial sector.

On the daily chart of EURUSD there are gradually emerging signals of a soon pullback. The indicator Stochastic is already in the overbought zone, and the RSI is close to this zone. At the beginning of the correction traders may focus on the level of 1.1 as a short-term downside target.


Consider the following trading strategy:

Sell EURUSD in the range of 1.104-1.107. Take profit — 1.1. Stop loss — 1.11.

Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion

This content is for informational purposes only and is not intended to be investing advice.

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