EUR/USD Eyes a Return to $1.09 on Economic Sentiment Numbers
It is a busy start to the day for the EUR/USD. Early in the European session, with finalized December inflation numbers from Germany in focus. Revisions from prelim numbers will provide direction ahead of ZEW Economic Sentiment figures for Germany and the Eurozone.
We expect the ZEW Economic Sentiment numbers for January to draw interest. Economic indicators from the euro area have signaled a shift in the macroeconomic environment, supporting the EUR/USD, with the ECB expecting a short-lived and shallow recession.
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Economists forecast the German Economic Sentiment Index to rise from -23.3 to -15.0 and the Eurozone Sentiment Index to increase from -23.6 to -14.3. Better-than-expected numbers would support a EUR/USD move.
Other stats include finalized inflation figures from Italy that should have a muted impact on the EUR/USD.
With the economic calendar on the busier side, ECB member commentary also needs monitoring. ECB members Luis de Guindos and Edouard Fernandez-Bollo will speak today. Members have towed a hawkish line, supporting further rate hikes to bring inflation to target. A deviation from the script would influence the EUR.
On Monday, ECB member Olli Rehn talked of front-loading interest rate increases to curb inflation. Front-loading would avoid a scenario whereby the ECB would have to make more aggressive moves in the future.
EUR/USD Price Action
At the time of writing, the EUR was up 0.07% to $1.08282. A mixed start to the day saw the EUR/USD fall to an early low of $1.08167 before rising to a high of $1.08324.
Technical Indicators
The EUR/USD needs to move through the $1.0832 pivot to target the First Major Resistance Level (R1) at $1.0863 and the Monday high of $1.08741. A move through $1.0850 would signal a bullish session. The German economic sentiment numbers would have to be EUR-friendly to support a bullish session.
In the case of an extended rally, the bulls will likely test resistance at the Second Major Resistance Level (R2) at $1.0905. The Third Major Resistance Level (R3) sits at $1.0978.
Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0790 in play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.0750. The Second Major Support Level (S2) at $1.0759 should limit the downside.
The third Major Support Level (S3) sits at $1.0687.
Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The EUR/USD sits above the 50-day EMA ($1.07520). 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 Major Support Levels and the 50-day EMA ($1.07520) would support a breakout from R1 ($1.0863) to target R2 ($1.0905). However, a fall through S1 ($1.0790) would give the bears a run at the S2 ($1.0759) and the 50-day ($1.07520). 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, with the manufacturing sector in the spotlight. The New York Empire State Manufacturing Index will be in focus. A less marked contraction would support market bets of a soft landing.
However, with the stats on the lighter side, investors will need to monitor FOMC member chatter. Any talk of hitting pause on interest rate hikes or delivering another 50-basis point rate hike would move the dial. FOMC member Williams speaks late in the day.