US Dollar Dominance and EURUSD Challenges 

As markets anticipate Friday’s ISM Manufacturing PMI release later today, attention turns to the US dollar’s recent strength and its impact on major currency pairs like EURUSD. The dollar, supported by robust economic fundamentals and optimism surrounding pro-growth policies under the incoming Trump administration, continues to exert downward pressure on the euro, which has hit multi-year lows. The technical analysis reveals persistent bearish signals for EURUSD, though a positive divergence suggests a potential pause or corrective rebound. Traders are closely monitoring key support and resistance levels to gauge future price movements in this evolving economic landscape.

Friday 17:00 (GMT+2) – USA: ISM Manufacturing PMI (USD)

Since September 25, the EURUSD has experienced a steady decline from its peak of 1.12130, driven by a confluence of bearish technical signals. The initial shift in momentum was marked by the appearance of a Shooting Star candlestick pattern, signaling diminishing buyer strength. This was followed by a technical reversal characterized as a failure swing, which, combined with a “Death Cross”—a bearish crossover of the 20-period and 50-period exponential moving averages—further intensified the downward trend.

Momentum indicators continue to align with this bearish outlook. The Momentum Oscillator remains below the neutral 100 level, highlighting persistent downward pressure, while the Relative Strength Index (RSI) stays below its 50 midpoint, firmly in bearish territory, reflecting sustained selling activity. However, a closer examination reveals a positive divergence between the Momentum Oscillator and price. This divergence suggests the possibility of a pause in the downtrend or even a potential corrective rebound, warranting caution in the bearish narrative.

Should the bulls take market control, traders may direct their attention toward the four potential resistance levels below:

1.03319: The initial resistance level is set at 1.03319, which mirrors the daily low marked on November 22.

1.04575: The second price target is identified at 1.04575, representing the swing high from December 30.

1.06285: The third price objective is determined at 1.06285, which corresponds with the daily high from December 6.

1.07603: An additional price target is established at 1.07603, representing the trough formed on October 23.

Should the bears maintain market control, traders may consider the four potential support levels listed below:

1.02228: The initial support level is seen at 1.02228, corresponding to the daily low formed on January 2.

1.01570: The second support level is estimated at 1.01570, representing the 261.8% Fibonacci Extension drawn from the low point, 1.03427, to the high point, 1.04575.

1.00422: The third support level is identified at 1.00422, reflecting the 361.8% Fibonacci Extension drawn from the low point, 1.03427, to the high point, 1.04575.

0.99712: An additional downside target is 0.99712, mirroring the 423.6% Fibonacci Extension drawn from the low point, 1.03427, to the high point, 1.04575.

The US dollar index surged to a two-year high as markets reopened for 2025, buoyed by optimism around the US economy and expectations of pro-growth policies under Donald Trump’s return to the White House. Diverging economic outlooks and interest rate paths weighed on European currencies, with the euro hitting its weakest level since November 2022 and the British pound falling to an eight-month low. Analysts cite strong US growth, low unemployment, and tempered expectations for Federal Reserve rate cuts as key factors supporting the dollar, while concerns about tariffs and economic stagnation continue to pressure the euro and pound.

In conclusion, the upcoming ISM Manufacturing PMI release will serve as a critical indicator for market direction, particularly in light of the US dollar’s recent strength and the EURUSD’s persistent bearish trajectory. While robust US economic fundamentals and pro-growth policy expectations under the Trump administration continue to bolster the dollar, technical and fundamental dynamics suggest the potential for volatility. Traders should closely monitor key support and resistance levels to navigate this shifting economic landscape.