Weekly FX Review - 10 January

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The euro has posted a decent move higher in recent weeks, and these gains have continued in recent days. In order to help put these moves into perspective we will take a look here at the weekly chart.

From here, we can clearly see how the euro came under persistent pressure through 2022, largely due to the hawkish stance of the Federal Reserve, which has been more hawkish than the ECB. This caused a sharp downward trend, shown by the 100 period Linear regression line (blue).

However, this long-term trend has recently been broken. Over this timescale, we can see that the 1.094 area is 50% of the losses posted through 2022.

Price action has been able to move up through 1.061, the 38.2% level, which has now opened up medium term upside targets around 1.0954 as the markets now start to price in a less hawkish stance from the Fed through 2023.

Can the buying momentum build enough to push on significantly from here? For the moment, this remains questionable as current price action can still “simply” be described as a recovery from the 2022 losses. Much more work needs to be done to feel confident that the euro can recover towards the 1.2250 area seen late in 2020.

This seemingly puts a cap on how much higher the euro can travel in Q1-Q2, as buyers may start to dry up without much more evidence that the eurozone is showing a more resilient economy than the US.

The 38.2% area of 1.061 may well become an area of interest. On any future nervousness, the buyers will want to see this area hold, otherwise concerns will increase that the Q4 2022 move was just a bear market rally.

So, while the medium-term outlook has improved, and upside targets lifted towards 1.045, there would appear to be strong headwinds on moves much higher than that, whilst we also still have important support down at 1.061, which is still a little too close for the bulls to feel overly confident just yet. Setting up a cautiously optimistic backdrop on the euro seen for the weeks ahead.

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