EUR/USD Bears Target Sub-$1.0750 on ECB Policy Chatter

It is a busy day for the EUR/USD. Early in the European session, December car registration numbers from Italy, Germany, and France will draw interest. Upbeat numbers would provide further evidence of a shift in the macroeconomic environment in Q4 2022.

Later in the session, finalized Euro area inflation numbers for December also need consideration. Revisions from prelim numbers would move the dial. According to the prelim CPI report, the annual inflation rate softened from 10.1% to 9.2%.

However, while the numbers will draw interest, the ECB continues to view inflation as far too high, suggesting that a hawkish policy move is coming, irrespective of today’s inflation numbers.

With the economic calendar on the busier side, ECB member commentary also needs monitoring. No ECB members are speaking today, leaving chatter with the media to influence.

On Tuesday, Bloomberg reported that ECB members are considering taking slowing the pace of rate hikes after February. ECB member comments aligned with the Bloomberg report could put the EUR/USD under pressure.

EUR/USD Price Action

At the time of writing, the EUR was up 0.03% to $1.07903. A range-bound start to the day saw the EUR/USD slip to an early low of $1.07867 before rising to a high of $1.07937.

Technical Indicators

The EUR/USD needs to move through the $1.0810 pivot to target the First Major Resistance Level (R1) at $1.0846 and the Tuesday high of $1.08649. A return to $1.0850 would signal another bullish session. The euro area inflation numbers would need to be hotter than expected to support a breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0906. The Third Major Resistance Level (R3) sits at $1.1001.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0751 in play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.07. The Second Major Support Level (S2) at $1.0715 should limit the downside.

The third Major Support Level (S3) sits at $1.0620.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The EUR/USD sits above the 50-day EMA ($1.07634). The 50-day EMA pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA ($1.07634) would support a breakout from R1 ($1.0846) to target R2 ($1.0906). However, a fall through the 50-day EMA ($1.07634) would bring the Major Support Levels into play. A fall through the 50-day EMA would signal a shift in sentiment.

The US Session

It is a busier day ahead on the US economic calendar, with wholesale inflation, retail sales, and industrial production in focus. Barring dire industrial production numbers, wholesale inflation and retail sales will likely have more impact.

A pickup in wholesale inflationary pressure and a slide in retail sales would be a risk-off combination.

Beyond the economic indicators, investors should also monitor FOMC member commentary. However, members would need to talk about a 50-basis point interest rate hike or a pause on lifting rates to move the dial.