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  • EUR/USD drops as the oversold US dollar charts broad-based recovery. 
  • The bulls need an above-forecast German IFO Expectations data to stall/reverse the decline.

EUR/USD feels the pull of gravity on the US dollar’s broad-based recovery. The losses could be reversed if the German IFO Expectations Index for December beats estimates. 

Down 0.15%

The currency pair is currently trading near 1.2246, representing a 0.15% decline on the day, having hit a 32-month high of 1.2273. 

According to some analysts, the dollar looks oversold on technical charts with market positioning skewed a little too bearish and ripe for a bounce. “Perhaps it’ll come from a bit of January repositioning,” Kyle Rodda, market analyst for IG Australia, tweeted early Friday. 

Besides, the US stock market rally is looking overstretched and due for a pullback, which may put a bid under the battered US dollar. At press time, the futures tied to the S&P 500 are reporting a 0.23% drop. 

A big beat on German data, due at 09:00 GMT, is needed to save the day for the EUR/USD bulls. 

Focus on German IFO

The IFO Expectations index, an early indicator of current conditions and business expectations for the next six months, is forecast to tick higher to 92.5 in December from November’s 91.5. 

Meanwhile, the Current Assessment index is seen falling to 89 from 90. Markets are forward-looking and are likely to focus more on the expectations component, which, according to BK Asset Management’s Kathy Lien, could rise due to vaccine optimism. 

An above-forecast IFO Expectations Index could again help EUR/USD ignore Germany’s recent decision to impose the economically-painful coronavirus lockdown and reverse losses seen at the time of writing. 

Technical levels