EUR/USD might hit a two-month high of 1.1804. The 14-day Relative Strength Index (RSI) is at 67.47, indicating positive momentum. The main support level is the nine-day EMA at 1.1715. Currently, the pair is trading around 1.1740 on Thursday after slight losses but remains steady. A bullish trend is evident as it moves within an ascending channel, supported by both nine- and 50-day EMAs.

Rising RSI and Possible Corrections

The RSI is close to the overbought line, indicating strong upward potential. If it goes above 70, we might see short-term downward corrections. If EUR/USD breaks above the two-month high, it could climb toward 1.1918. Immediate support is near the nine-day EMA, followed by levels at 1.1700 and 1.1690, which marks the lower limit of the ascending channel. If we break below these levels, the pair could drop and test the 50-day EMA at 1.1644 or even a three-week low at 1.1589. In the currency market, the Euro is showing strength against major currencies, especially the New Zealand Dollar. The percentage changes reflect its fluctuating strength in response to market shifts. EUR/USD’s stability in trading is influenced by upcoming ECB policy announcements and US CPI data. Decisions from the Bank of England and US inflation reports are also crucial for market direction.

The Impact of US Inflation Data and ECB Policy

Given the current technical setup and recent events, there is a clear bullish outlook for EUR/USD. The US inflation data for November came in slightly lower than expected at 3.0%, which has weakened the US Dollar and positively affects our pair. This supports the ongoing momentum in the ascending channel. Traders in derivatives should consider testing the 1.1804 high in the near future. Buying call options with strike prices around 1.1800 or 1.1850 could be advantageous, especially since the RSI suggests strong momentum. However, we should remain alert for an RSI move above 70, which could indicate overbought conditions and lead to a short correction. The European Central Bank (ECB) decided to keep rates steady, which was expected. However, their comments were more hawkish than anticipated, suggesting slower rate cuts in 2026. This strengthens the Euro against the Dollar. Notably, speculative net short positions on the Euro have dropped by over 15% in the past month, indicating a shift in sentiment. Looking forward, a sustained break above the 1.1820 resistance zone could bring the June 2021 high of 1.1918 back into view. We haven’t reached that level in over four years, and achieving it would mark a major shift in the long-term trend. The economic landscape of mid-2021 was significantly different, driven by post-pandemic recovery rather than the current low-inflation environment. To manage risk, we are monitoring the nine-day EMA at 1.1715 as the first key support level. A clear drop below this level, along with the psychological 1.1700 mark, would challenge the bullish outlook. Traders may want to consider protective put options with a strike price below 1.1690 to guard against sudden shifts in sentiment. Create your live VT Markets account and start trading now.

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