EUR/USD Faces Risk of Sub-$1.06 on Inflation and Policy Sentiment

It is a quiet day ahead for the EUR/USD. There are no economic indicators from the Eurozone for investors to consider. The lack of stats will leave the markets to digest the latest round of euro area stats and influences on monetary policy.

Softer German inflation figures for January could remove the need for more aggressive policy moves to bring inflation under control. Mixed economic indicators also suggest the need for caution, else the ECB may face the risk of delivering a less shallow and lengthier economic recession than forecasted.

While there are no stats to guide the EUR/USD, investors need to consider ECB member speeches. ECB President Lagarde and Mr. Panetta will attend the Eurogroup meeting in Brussels today, with the economy, inflation, and monetary policy likely hot topics.

The ECB will release an Economic Bulletin pre-release focusing on fiscal policy and high inflation. With little else for the markets to digest, we expect more interest in the pre-release than usual.

EUR/USD Price Action

At the time of writing, the EUR/USD was flat at $1.06762. A mixed start to the day saw the EUR/USD rise to an early high of $1.06815 before easing back.

Technical Indicators

The EUR/USD needs to move through the $1.0698 pivot to target the First Major Resistance Level (R1) at $1.0731 and the Friday high of $1.07527. A return to $1.07 would signal a bullish session. However, the EUR/USD would need 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 $1.0785. The Third Major Resistance Level (R3) sits at $1.0871.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0644 in play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.06. The Second Major Support Level (S2) at $1.0612 should limit the downside.

The third Major Support Level (S3) sits at $1.0525.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The EUR/USD sits below the 200-day EMA ($1.07467). 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 R1 ($1.0731) and the 200-day EMA ($1.07467) would give the bulls a run at the 50-day ($1.07708) and R2 ($1.0785). A move through the 50-day EMA would send a bullish signal. However, failure to move through the 200-day EMA ($1.07467) would leave S1 ($1.0644) in view.

The US Session

It is a quiet day on the US economic calendar. There are no stats to influence the EUR/USD and market risk sentiment. The lack of stats will leave investors to consider tomorrow’s US CPI Report. A hotter-than-expected CPI Report would fuel bets of a more hawkish Fed policy outlook.

FOMC member chatter will also provide the EUR/USD with direction. However, with no members on the calendar to speak, investors will need to monitor commentary with the media.