Considering the longer-term bearish tone surrounding the US currency, any meaningful pullback might now be seen as a buying opportunity
The euro extended the rally on Wednesday amid the persisting dollar weakness and upbeat risk sentiment across the global financial markets. EURUSD climbed above the 1.2300 figure for the first time since April 2018, finishing the year with strong gains. Today, the pair has settled marginally below this level while refraining from a pronounced downside correction as the prevalent bearish sentiment surrounding the greenback limits any meaningful slide.
Furthermore, considering the longer-term bearish tone surrounding the US currency, any meaningful pullback might now be seen as a buying opportunity. In case of a correction, the common currency could initially retreat to the 1.2230 region. Once below this level, the pair could see deeper losses.
In the longer-term, the high-yielding euro could derive support from the economic recovery in 2021 following the pandemic. On the other hand, if the currency continues to rally, the ECB could push the euro lower through its verbal interventions and a dovish monetary policy. However, if the recovery process turns out slower than expected, the safe-haven dollar demand could reemerge and send the European counterpart south.
From the technical point of view, the pair could see extend gains in the short term, as the daily RSI hasn’t entered the overbought territory just yet, suggesting there is still room for further upside in the short term. If the 1.2300 figure turns into support, the immediate resistance should be expected around 1.2330, followed by 1.2370 and the 1.2400 handle.
On the four-hour charts, EURUSD has retreated somewhat from fresh long-term peaks but stays above the ascending 20-SMA while the RSI looks directionless in the neutral territory, signaling limited downside risks for the common currency in the immediate term.