EUR/USD Bears to Target Sub-$1.055 on US Stats and Fed Chatter

It was a relatively busy morning for the EUR/USD. Finalized Eurozone inflation figures for January drew interest. With the ECB targeting a 50-basis interest rate hike in March, the finalized numbers needed to be unchanged or hotter than prelim figures.

In January, the euro area annual inflation rate softened from 9.2% to 8.6%, up from a prelim 8.5%.

According to Eurostat,

• Luxembourg (5.8%) and Spain (5.9%) recorded the lowest annual inflation rates, while Latvia (21.4%) registered the largest.
• Food, alcohol, & tobacco (+2.94 percentage points, pp) had the highest contribution followed by energy (+2.17 pp), and services (+1.80 pp).

Despite inflation softening from the October peak annual inflation rate of 10.6%, inflation remained elevated, keeping the pressure on the ECB to continue tightening policy to bring inflation to target. While headline inflation softened in January, the annual core inflation rate accelerated from 5.2% to 5.3%.

However, the finalized numbers will unlikely influence beyond March policy moves. In the latest ECB Economic Bulletin, the ECB highlighted that beyond-March policy decisions would be data-dependent and that the ECB will follow a meeting-by-meeting approach. February and March inflation figures will have more sway.

After the latest round of euro area stats, investors need to monitor ECB member speeches. However, with no Executive board members on the calendar to speak, commentary with the media will need consideration. ECB members will need to discuss post-March moves to draw interest.

With no other euro area economic indicators to consider, the focus will now shift to the US session.

EUR/USD Price Action

At the time of writing, the EUR/USD was down 0.08% to $1.05956. A mixed morning saw the EUR/USD rise to an early high of $1.06278 before falling to a low of $1.05858.

Technical Indicators

The EUR/USD needs to move through the $1.0622 pivot to target the First Major Resistance Level (R1) at $1.0646 and the Wednesday high of $1.0664. A return to $1.0650 would signal a bullish session. However, the EUR/USD would need today’s stats and the Fed 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 $1.0687 and resistance at $1.07. The Third Major Resistance Level (R3) sits at $1.0752.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0581 in play. However, barring a data-fueled sell-off, the EUR/USD pair should avoid sub-$1.0550. The Second Major Support Level (S2) at $1.0557 should limit the downside. The Third Major Support Level (S3) sits at $1.0492.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The EUR/USD sits below the 50-day EMA ($1.06738). The 50-day EMA fell further back from the 200-day EMA, with the 100-day EMA pulling back from the 200-day EMA, delivering bearish signals.

A move through R1 ($1.0646) would give the bulls a run at the 50-day EMA ($1.06738) and R2 ($1.0687). A move through the 50-day EMA would send a bullish signal. However, failure to move through the 50-day EMA ($1.06738) would leave the Major Support Levels in play.

Up Next

It is a busier day on the US economic calendar. Initial jobless claims and Q4 GDP numbers will be in the spotlight. An unexpected fall in jobless claims and an upward revision to GDP numbers would refuel bets of a more hawkish Fed policy outlook.

Labor market conditions would need to materially deteriorate for the Fed to take its foot off the gas, with 50-basis point interest rate hikes back on the table.

While the FOMC meeting minutes were less hawkish than expected, the FOMC meeting preceded the latest round of US economic indicators that fueled bets of a more hawkish Fed policy outlook.

Following the FOMC meeting minutes and today’s stats, investors should also monitor FOMC member chatter. FOMC Member Bostic will speak today.