EUR/USD to Target $1.0650 or Face a Pullback to Sub-$1.055

It is a quiet day for the EUR/USD on the economic calendar. There are no economic indicators from the euro area for the markets to consider today, with the euro area markets closed for the holidays.

With the European markets closed and the lack of stats, there are unlikely to be any material moves through the Asian and European sessions. We could see some activity during the US session, though volumes are unlikely to see a material jump.

The quiet session will allow investors to consider the current economic outlook and the balance of power between the Fed and the ECB.

Steady labor market conditions across the euro area and the US and a pickup in consumer confidence support the ECB and the Fed’s policy plans to bring inflation to target. However, the euro area economy faces the prospect of a deeper economic recession that should leave monetary policy divergence in favor of the dollar.

One curve ball for the Fed was the prelim private sector PMIs for December, which showed a more marked contraction in the US services sector. In contrast, euro area private sector PMIs showed a slower contraction, with numbers out of Germany suggesting a possible turnaround in the economic outlook.

Another round of stats, including the US labor market, retail sales, and inflation figures, should give a better idea of what to expect in February. While the European markets are closed, there is plenty for investors to consider.

With the European markets closed, there are no ECB members speaking today.

EUR/USD Price Action

At the time of writing, the EUR was up by 0.02% to $1.06160. A mixed start to the day saw the EUR/USD rise to an early high of $1.06342 before falling to a low of $1.05946.

Technical Indicators

The EUR/USD needs to avoid the $1.0611 pivot to target the First Major Resistance Level (R1) at $1.0636. A move through the Friday high of $1.06328 would support a bullish session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0657. The Third Major Resistance Level (R3) sits at $1.0704.

A fall through the pivot would bring the First Major Support Level (S1) at $1.0589 into play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.055. The Second Major Support Level (S2) at $1.0565 should limit the downside.

The third Major Support Level (S3) sits at $1.0519.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The EUR/USD sits above the 50-day EMA ($1.06028). The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widened from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA ($1.06028) would support a move through R1 ($1.0636) to target R2 ($1.0657). However, a fall through the 50-day EMA ($1.06028) would signal a fall through S1 ($1.0589) to bring S2 ($1.0565) and the 100-day EMA ($1.05537) into view. The 200-day EMA sits at $1.04321.

The US Session

It is a quiet day ahead, with no US stats for the markets to consider. The lack of stats should leave the EUR/USD range bound through the US session.

However, FOMC member chatter could move the dial following last week’s US stats that sent mixed signals to the Fed.