EUR/USD bounces up to approach 1.0650 with the US Dollar losing ground

• The euro bounces up at 1.0625 and approaches 1.0650 area.
• The US Dollar turns lower on thin post-Christmas trading.
• EUR/USD should return above 1.0780 to confirm the longer-term uptrend – SocGen

The Euro is regaining some upside traction during Wednesday’s European trading. The pair has bounced up from the intra-day low at 1.0625 to regain lost ground, approaching the 1.0650 area.

On a wider perspective, however, the common currency remains trapped within a horizontal channel between 1.0610 and 1.0650, consolidating gains after an 11% rally from September lows at 0.9535.

The Dollar ticks down on a thin trading session

In the absence of key macroeconomic drivers, the dollar remains on the back foot this week amid growing speculation that the Federal Reserve will slow down the monetary tightening cycle in 2023.

US data released last Friday showed that inflationary pressure has eased for the third consecutive month in November, suggesting that the peak of inflation might have passed. These figures would offer some leeway for the Federal Reserve to ease tame its hawkish stance over the coming months which has increased selling pressure on the USD.

Furthermore, the moderately positive market sentiment, buoyed by news that China is scrapping restrictions for inbound travelers and relaxing the covid control policy in the country, is putting additional pressure on the safe-haven USD.

The US Dollar Index, which opened the day on a mildly positive tone, has turned lower from session highs at 104.35 during the European session, losing about 0.25% to approach the 104.00 level.

EUR/USD needs to return above 1.0780 to resume its uptrend – SocGen

Analysts at Société Générale point out to 1.0780 as a crucial level to confirm the longer-term bullish bias: “Recent bout of bounce has developed within two converging ascending trend lines forming a rising wedge; this generally denotes receding upward momentum. This is also highlighted by daily MACD which has turned flattish (…) In case the rebound falters near 1.0780, a short-term pullback is not ruled out towards the 200DMA at 1.0340 and 1.0220.”

Technical levels to watch