EUR/USD Bulls to Target $1.0950 on ECB Deposit Rate Forecasts

It is a relatively quiet day ahead for the EUR/USD. Late in the European session, Eurozone consumer confidence figures for January will be in focus.

Consumer confidence has been on an improving trend across the euro area. A milder winter, easing inflationary pressures, and a stable labor market coupled with a pickup in wage growth have contributed. Expectations of a shallow and short-lived recession have also supported improving sentiment.

However, consumer sentiment has yet to return to levels before the Russian invasion of Ukraine.

Better-than-expected numbers would support further gains for the EUR/USD, which continues its move toward $1.10.

While Eurozone consumer confidence figures will be in focus late in the session, ECB President Lagarde will also draw interest. Lagarde will speak at the Deutsche Borse Annual Reception. However, Lagarde would need to deviate from recent commentary to move the dial.

This morning, hawkish ECB sentiment and dollar weakness supported a bullish start to the day. According to a Reuters poll, the ECB will raise the deposit rate to 3.25% by mid-year. In the December poll, economists forecasted the deposit rate to peak at 2.75%.

EUR/USD Price Action

At the time of writing, the EUR was up 0.35% to $1.08925. A mixed start to the day saw the EUR/USD fall to an early low of $1.08592 before rising to a high of $1.09031.

The EUR/USD broke through the First Major Resistance Level (R1) at $1.0875 and briefly through the Second Major Resistance Level (R2) at $1.0895.

Technical Indicators

The EUR/USD needs to avoid a fall through R1 and the $1.0839 pivot to retarget the Second Major Resistance Level (R2) at $1.0895 and the morning high of $1.09031. A return to $1.09 would signal an extended rally. However, the EUR/USD would need hawkish ECB commentary to support a breakout.

In the case of an extended rally, the bulls will likely test the Third Major Resistance Level (R3) at $1.0952.

A fall through R1 and the pivot would bring the First Major Support Level (S1) at $1.0818 into play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.08 and the Second Major Support Level (S2) at $1.0782.

The third Major Support Level (S3) sits at $1.0725.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The EUR/USD sits above the 50-day EMA ($1.08008). The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above S1 ($1.0818) and the 50-day EMA ($1.08008) would support a breakout from R2 ($1.0895) to target R3 ($1.0952). However, a fall through S1 ($1.0818) and the 50-day EMA ($1.08008) would bring S2 ($1.0782) into play. A fall through the 50-day EMA would signal a shift in sentiment.

The US Session

It is a quiet day ahead on the US economic calendar. There are no US economic indicators to provide direction in the US session. The lack of stats will leave the EUR/USD in the hands of market risk sentiment.

There are also FOMC members speaking today, with the Fed having entered the blackout period on Saturday.