EUR/USD regained traction after overnight’s drop and rose above 1.05 handle, penetrating falling daily cloud (spanned between 1.0490 and 1.0664), after better than expected German January Ifo report boosted the sentiment.
Bulls look to resume recovery from Jan 13 low (1.0177) after reversal pattern has been completed on weekly chart (the pair was up 2.1% last week, in the biggest weekly advance since the second week of July 2023).
The action is underpinned by positive daily studies (daily Tenkan/Kijun-sen are converging after formation of bull-cross / strong positive momentum) with extension above Fibo barrier at 1.0573 (38.2% of 1.1214/1.0177) needed to verify signal and open way towards upper triggers at 1.0629/56 (Dec 6 lower top / cloud top).
However, recovery may face increased headwinds and risk of stall due to divergence of Fed and ECB monetary policies, as the US central bank is widely expected to stay on hold on policy meeting on Wednesday, while the ECB’s rate cut on Thursday is fully priced.
Also, dynamics of policy easing remains in favor on the ECB which is expected to cut by 75 basis points until June while Fed is seen easing policy by 50 basis points in 2025, although the first cut might be delayed and occur after June.
Res: 1.0534; 1.0573; 1.0629; 1.0656.
Sup: 1.0490; 1.0454; 1.0422; 1.0396.
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