EURUSD Weekly Analysis 25/01/2025

Fundamental Analysis
The eurozone's January preliminary PMIs are in focus this week, with expectations for a modest improvement in manufacturing (45.1 to 45.4) and the composite figure staying just below 50. Despite these slight gains, persistent external uncertainties and already-priced-in European Central Bank (ECB) rate cuts suggest limited short-term optimism for business confidence.

Key Drivers of EUR/USD

1. ECB Outlook:
   President Christine Lagarde’s reiteration of gradual rate cuts aligns with recent ECB messaging, even from hawkish members. Next week’s anticipated cut is unlikely to surprise markets, keeping EUR/USD movement subdued.

2. U.S.-China Trade Sentiment:
   EUR/USD has gained marginal support from optimistic comments on China tariffs, halving its short-term risk premium. However, lingering concerns over U.S.-EU trade tensions may cap further upside.

3. Market Reaction to PMIs:
   Unless PMIs disappoint, the pair could continue testing the 1.0534 level, with the China trade news providing a supportive backdrop.

Outlook:

EUR/USD remains sensitive to PMI data and trade developments. While near-term gains are possible, structural uncertainties around the eurozone and U.S.-EU trade relations may limit sustained upward momentum.

2. Key Support Levels

• 1.0371 & 1.0341 (H4 Liquidity):

  • High liquidity zones; monitor for sweeps and reversal patterns like bullish engulfing or pin bars.

• 1.0354 (Weekly FVG):

  • Critical confluence zone with higher timeframe demand. Ideal for long opportunities.

• 1.0330 (Daily FVG):

  • Additional support; watch for bullish reactions to confirm upward momentum.

3. Long Opportunities

• 1.0371 & 1.0341 (H4 Liquidity):

  • These levels are significant liquidity zones.

  • Look for bullish reversal patterns, such as bullish engulfing candles or pin bars, for confirmation.

• 1.0354 (Weekly Fair Value Gap):

  • Strong confluence with higher timeframe demand.

  • Enter long positions with stops below this zone, targeting higher levels.

• 1.0330 (Daily Fair Value Gap):

  • An additional support layer where bullish reactions may occur.

  • Wait for a confirmation candle or bullish divergence before entering.

Targets

• Primary Target: 1.0534 (Daily Liquidity):

  • Anticipate a liquidity grab here. Partial profit-taking is recommended.

• Extended Target: 1.0629:

  • If bullish momentum continues, this level offers an ideal zone for further gains.

4. Short Opportunities

• 1.0534 (Daily Liquidity):

  • Monitor for signs of exhaustion, such as a liquidity grab or bearish reversal patterns (e.g., bearish engulfing or shooting star) on the H4 or daily chart.

• Targets:

  • Primary Target: 1.0440 (Intermediate Support):

    • This level aligns with minor liquidity and could act as a first target for profit-taking.

  • Secondary Target: 1.0371 (H4 Liquidity):

    • A key support zone where buyers may re-enter. Consider securing most of the profits here.

5. Summary

• With bullish momentum intact, EUR/USD has strong potential to reach 1.0534 and extend toward 1.0629 if support zones hold and confirmation signals align.

1.0534, 1.0629 (Daily Liquidity):

• A potential rejection zone where liquidity grabs may occur.

• Look for bearish reversal signals (e.g., bearish engulfing, shooting star) on the H4 or daily chart to validate shorts.

• Use your strict money management rules to manage risks effectively.

Technical analysis

1. Overview of Momentum and Market Structure

• Current Momentum: Bullish.

• Last Week’s Performance: Rebounded strongly after a prolonged decline.

• Range: 1.0266–1.0521.

• Expectation: A bullish continuation within the range, with potential for new highs.