EUR/USD Five Day Forecast

After forming the January 3 lows in the 1.03s the EUR/USD pair has rebounded up into the 1.06s.

The EUR attempted another move up towards 1.0670 levels on Fri but rally was kept to 1.0670-80 levels again.

This is also the 61.8% Fibonacci retracement level of Dec high to Jan low which suggests there is a structural barrier that could resist further strength going forward.

Concerning the outlook, we note the pair has traced out a three-wave a-b-c pattern during the rebound.

A-b-c’s are classic corrective patterns and now that this one appears complete, it indicates a possibility that the dominant downtrend is about to resume and push lower again.

The rebound is steep, however, so substantial confirmation is required to support the bearish view, with a break below the 1.0339 lows, providing the signal for more downside.

Such a move would lead to a continuation lower to the next target at 1.0290, where the S1 monthly pivot is situated.

Pivots often present barriers to the trend as they attract a lot of traders opening counter-trend trades in expectation of a bounce.

Alternatively, we cannot rule out an extension higher.

The MACD is above the zero-line now and the exchange rate has pushed higher four weeks in a row.

If the pair moves above the a-b-c’s highs at 1.0687, it will probably signal a continuation of the trend higher towards an upside target of 1.0800.

Events, Data for the Euro this Week

The big data event to watch for is Wednesday's Eurozone inflation seriers.

Will the positive uptick in inflation still be evident?

Analysts are looking for an annualised reading of 1.1%, unchanged on the previous month.

Anything better could help the Euro.

The European Central Bank (ECB) then meets at 12.45 GMT on Thursday, January 19. Analysts will be looking out for any evidence that the ECB are considering winding down – or tapering - their money-printing programme.

If there is any hint of tapering, the Euro is likely to rise.

Continued steady growth in the region has led some analysts to see a chance that the ECB might begin discussing an end to stimulus.

At the last meeting ECB governor Mario Draghi dismissed any talk of reducing stimulus, but the ECB is wary of not wishing to jeopardize the fragile recovery by taking any steps that could reverse the uptrend in growth and inflation.

Now that the recovery is more embeded there is the chance of Draghi openly discussing an end to money-printing.

The weakness of the Euro has gone a long way in supporting the economy and boosting inflation, leading ECB member Villeroy to say that growth will be solid in 2017.

“We believe that this is a view shared by a number of policymakers. According to the last ECB minutes, headline inflation is rising significantly giving the central bank more reasons to consider reducing asset purchases. Any recognition of tapering would be euro-positive,” says Kathy Lien at BK Asset Management.

Data for the Dollar

Monday is Martin Luther King day and a public holiday in the U.S.

Tuesday sees the release of Core CPI at 18.30 GMT, which is forecast to come out at 0.2% in December.

On Thursday Crude Oil Inventories, Building Permits and the Philadelphia Fed Manufacturing Index are released.

Building Permits are expected to rise to 1.225 million in December and the Phili Fed to pull-back to 16.0.