EUR/USD, EUR/JPY Face a Slow Week in the Absence of Data and Thin Liquidity

EURO FORECAST:

EURO FORECAST: NEUTRAL

READ MORE: US PCE Price Index Declines Adding Further Pressure on the DXY as Gold Rises to $2070/oz

WEEK IN REVIEW

The Euro enjoyed a positive week against its counterparts, the Japanese Yen and the US Dollar respectively. A lot of the moves this week on both EUR/USD and EUR/JPY were largely facilitated by both US and Japanese data.

Looking at the US and we had a Q3 GDP Growth number which was revised down and followed by the Feds preferred inflation gauge, the PCE data release on Friday. The softer data left the US Dollar hanging on the edge of an abyss heading toward the year end. Market participants continue to ramp up rate cut expectations with Fed policymakers keeping a close eye on developments. As it stands now market participants are pricing in an 88% chance of a rate cut in March 2024.

Source: CME FedWatch Tool

Looking at EUR/JPY which has made a recovery this week following the recent rise in Japanese Yen. However, Japanese Yen strength has faded this week as the BoJ meeting and inflation put an end to speculation that a pivot in policy was on the horizon. Earlier on Friday we heard from ECB Policymaker Schnabel who stated than a short-term rise in inflation is expected and that there is still some way to go on inflation.

THE WEEK AHEAD: THIN LIQUIDITY AND LACK OF HIGH IMPACT DATA

Looking ahead to next week and even with some medium impact data from Japan, the thin liquidity environment is likely to keep any significant moves muted. The ongoing geopolitical tension adds a further layer of intrigue. I am expecting a quiet week with a lot of rangebound trading looking the most likely. The BoJ summary of Opinions will give us more information regarding the stance of the BoJ and could lead to further yen weakness, if not next week, then the first week of 2024.

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TECHNICAL OUTLOOK AND FINAL THOUGHTS

Looking at the technical perspective and EURJPY has staged a bit of recovery this week. EURJPY weekly candle is on course for a bullish engulfing candle close which hints at further upside ahead.

On a daily timeframe EYRJPY is trading between the 200-day MA providing support and 20 and 100-day MAs resting at the 158.00 mark. A break above the 158.00 level brings the 50-day MA into focus which rests at 159.64 and of course the psychological 160.00 mark.

Alternatively, a push lower here faces immediate support around the 156.00 mark before the 200-day MA at 154.66 comes into focus.

EUR/JPY Daily Chart – December 22, 2023

Source: TradingView

EURUSD

EURUSD has finally recorded a daily candle close above the 1.1000 level, but further upside maybe limited in the week ahead. Looking at things historically and the week after Christmas is usually marred by thin liquidity and rangebound trading.

There is every chance that EURUSD fails to break this week’s high around the 1.1040 level, which if it holds could see EURUSD trade in a tight range between the 1.1040-1.0948 handles. A break below the 1.1000 level may open up a retest of support around the 1.0948 and 1.0900 levels.

Key Levels to Keep an Eye On:

Support Levels

Resistance Levels

EUR/USD Daily Chart – December 22, 2023

Source: TradingView

IG CLIENT SENTIMENT

Taking a quick look at the IG Client Sentiment Data which shows retail traders are 65% net-short on EURUSD. Given the contrarian view adopted here at DailyFX, is EURUSD destined to surrender the 1.1000 level once more?

For tips and tricks regarding the use of client sentiment data, download the free guide below.

Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda