EUR/USD at Risk of a Return to Sub-$1.07 on US Stats and Fed Chatter

It is a relatively quiet day ahead for the EUR/USD. Early in the European session, December industrial production numbers for Italy will draw interest.

The markets will likely stomach a modest decline following the weak numbers from Germany. According to the latest PMI survey, Italy’s manufacturing sector returned to growth in January. The manufacturing PMI increased from 48.5 to 50.4. The survey revealed a modest increase in production but a continued fall in new orders.

Economists forecast production to fall by 0.1% in December, following a 0.3% decline in November. An unexpected rise in production would deliver EUR/USD support and support the ECB’s economic outlook.

While the stats are on the lighter side, investors need to consider ECB member speeches. ECB member Isabel Schnabel will hold a Q&A session on Twitter this afternoon (1500 CET). With the markets expecting a 50 basis point rate hike in March, a deviation from the script would move the dial.

EUR/USD Price Action

At the time of writing, the EUR/USD was up 0.01% to $1.07386. A bullish start to the day saw the EUR/USD rise to an early high of $1.07426 before easing back.

Technical Indicators

The EUR/USD needs to move through the $1.0746 pivot to target the First Major Resistance Level (R1) at $1.0782 and the Thursday high of $1.07908. A move through $1.0750 would signal a bullish session. However, the EUR/USD would need the stats and ECB member chatter to support a breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0828. The Third Major Resistance Level (R3) sits at $1.0910.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0700 in play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.0650. The Second Major Support Level (S2) at $1.0663 should limit the downside.

The third Major Support Level (S3) sits at $1.0581.

Looking at the EMAs and the 4-hourly chart, the EMAs send a more bearish signal. The EUR/USD sits below the 200-day EMA ($1.07502). The 50-day EMA narrowed to the 200-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through the 200-day EMA ($1.07502) would give the bulls a run at R1 ($1.0782) and the 50-day ($1.07928) and 100-day ($1.08038) EMAs. A move through the 50-day EMA would send a bullish signal. However, failure to move through the 200-day EMA ($1.07502) would leave S1 ($1.0790) in view.

The US Session

It is a quiet day on the US economic calendar. Prelim Michigan Consumer Sentiment figures for February will draw interest. While the headline number will influence, investors should consider the sub-components, including the Inflation Expectations Index.

FOMC member chatter will also provide the EUR/USD with direction, with Christopher Waller speaking late in the session.