EUR/USD and a Return to $1.0450 in the Hands of ECB President Lagarde

It is a quiet start to the week for the EUR/USD on the economic calendar. There are no economic indicators from the Eurozone for investors to consider.

Following last week’s reaction to the private sector PMIs and business and consumer sentiment numbers, monetary policy will remain a focal point today.

Last Thursday, the ECB monetary policy meeting minutes highlighted that “households were increasingly postponing major purchases and reducing their savings in order to maintain their consumption of basic necessities.”

Despite this, the ECB noted that there was still excess savings from the COVID-19 pandemic and, coupled with fiscal support and labor market conditions, should drive consumption.

Following the latest sentiment numbers, the markets will look for any shift in sentiment toward the economic outlook and monetary policy.

ECB President Christine Lagarde will speak today. While ECB member commentary has delivered uncertainty toward the December policy move, Lagarde has maintained the need for further rate hikes to tackle high inflation. Clues on the likely size of the next move would influence the EUR/USD.

EUR/USD Price Action

At the time of writing, the EUR was down 0.03% to $1.03819. A mixed start to the day saw the EUR/USD fall to an early low of $1.03655 before finding support.

Technical Indicators

The EUR/USD needs to move through the $1.0390 pivot to target the First Major Resistance Level (R1) at $1.0425 and the Friday high of $1.04293. Risk-on sentiment and hawkish ECB member chatter would support a breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0464. The Third Major Resistance Level (R3) sits at $1.0539.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0350 in play. However, barring another sell-off, the EUR/USD pair should avoid sub-$1.030. The Second Major Support Level (S2) at $1.0315 should limit the downside.

However, dovish ECB commentary could deliver a sharp pullback. The third Major Support Level (S3) sits at $1.0240.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The EUR/USD sits above the 50-day EMA ($1.03314). The 50-day EMA widened from the 100-day EMA, with the 100-day EMA moving away from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA ($1.03314) would support a breakout from R1 ($1.0425) to target R2 ($1.0464) and $1.05. However, a fall through S1 ($1.0350) would bring the 50-day EMA ($1.03314) and S2 ($1.0315) into play. The 200-day EMA sits at $1.01209.

The US Session

It is a quiet start to the week, with the Dallas Fed Manufacturing Index numbers for November in focus. Barring a sharp decline, the numbers should have a muted impact on the dollar and the broader market.

However, we expect sensitivity to FOMC member chatter, with FOMC member Williams speaking today.