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EUR/USD Forecast 04 Jan 2016

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EUR/USD Forecast 04 Jan 2016
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The liquidity is still affected by the winter holidays

The Euro started on a bullish note, strengthening against the US Dollar in the first part of the year’s first trading session.

The liquidity is still affected by the winter holidays and the pair is prone to sharp reversals without apparent reason so we recommend caution throughout the day.

At 1:00 pm GMT the German Prelim CPI (main gauge of inflation) comes out, with an expected increase from the previous 0.1% to 0.2%.

If the actual number matches or surpasses analysts’ expectations, the Euro is likely to continue to climb above the resistance located at 1.0940.

Later in the day, at 3:00 pm GMT keep an eye on the U.S. Manufacturing PMI (a survey of purchasing managers). Higher numbers than the consensus 49.1 can strengthen the US Dollar and if this is the case we will probably see the pair move down.

The pair is likely to try to break 1.0940 again but the Relative Strength Index is rapidly approaching its 70 level which shows that price is overbought, so we favour a fall, especially if the pair bounces around 1.0940 again. The long upper wick seen a few candles back also shows rejection and increases the chances of a drop through 1.0905.

How to trade

We favor end of day Puts when 1.0905 is broken. A more aggressive approach would be to enter Puts when price touches 1.0940 resistance and bounces lower, without waiting for 1.0905 to be broken. Keep a close eye on the economic data released throughout the day because it can heavily influence the pair’s direction.

Expiry time: 21:00 GMT

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