EUR/USD: The range to watch heading into 2016

<p>Over the last week or so, we’ve reset the longer-term outlooks for a number of major currency pairs and markets, but now we wanted to […]</p>

Over the last week or so, we’ve reset the longer-term outlooks for a number of major currency pairs and markets, but now we wanted to take a look at the key short-term levels to watch on the world’s most widely-traded currency pair, EUR/USD.

Of course, there’s been little in the way of meaningful economic data today, but the reports that we have seen still suggest that the Eurozone is struggling to get the economic engine to turn over. Consumer Prices in Spain, the Eurozone’s fourth largest economy, came out flat (0.0%) year-over-year in December, missing expectations of a 0.1% rise. Though this reading did miss economists’ expectations, it’s worth noting that this was still the second-highest reading since June 2014, so ECB policymakers can take solace in the fact that deflationary pressures may be fading.

In a separate report, traders learned that the M3 money supply in the Eurozone rose 5.1% in November, keeping pace with the gains over the last few months. Monetary policy operates with a significant lag, but the increasing quantities of currency in the financial system should eventually lead to an uptick in price pressures in the Eurozone.

Technical view: EUR/USD

On a short-term basis, EUR/USD remains trapped within the 1.0800-1.1050 range that has contained rates since the ECB meeting at the start of this month. As of writing, the pair is moving sideways directly in the middle of the range in the lower-1.0900s and no fireworks are likely this week.

That said, as we flip the calendars to 2016, traders will be closely watching this tight range for a breakout one way or another. A topside breakout (note that the 100- and 200-day moving averages are also looming at 1.1050) could lead to a continuation up toward 1.12 or higher in January, whereas a bearish breakdown could open the door for a retest of support in the 1.05-1.06 zone.

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