EUR/USD Forecast: consolidating above 1.2200, bulls hold the grip
|- ECB's officers have become busy bees, trying to down-talk the EUR.
- EU inflation confirmed at 1.4% YoY, down from November 1.5%.
The EUR/USD pair jumped to a new 3-year high of 1.2322 early Asia, as the dollar resumed its decline in Tuesday's American session, with the DXY briefly piercing 90.00 before bouncing. The common currency began easing from the mentioned level in a steady slide that drove the pair back to the 1.2220/30 region ahead of EU December final CPI. The just-released inflation reading was confirmed at 1.4% YoY and 0.4% MoM, although the core monthly reading was revised up, resulting at 0.5%. Inflation in Annual inflation was down from 1.5% in November, but up from the 1.1% from a year earlier.
In the meantime, ECB's officers have been busy bees these days. Following Villeroy's comments on Tuesday indicating that recent EUR's strength adds uncertainty to the future of monetary policy, today it was the turn of Constancio and Nowotny. The first expressed its concerns about EUR's moved not reflecting fundamentals, remarking that policymakers are in no rush to change their guidance on stimulus. Nowotny also expressed its concerns about the EUR exchange rate that "should be observed," despite being a well-known hawk. The central bank is torn between a rock and a hard place, as rising oil prices alongside with steady economic growth back the case for higher inflation, offset partially by an expensive currency.
Policymakers will keep on trying intervening verbally , on hopes they could finally remove QE without triggering a sharp appreciation of the common currency. If things get out of hands, they would prefer to leave the ongoing stimulus unchanged past September this year. Given that such decision could be taken probably in July, ECB's jawboning on EUR's strength is the least of market's concerns at the time being.
The US session will bring little from the country today, with the most relevant data being Industrial Production and Capacity Utilization alongside with a couple of Fed's speakers. Market players are paying even less attention to what US policymakers have to say, as they are now waiting for Powell and whatever his new leadership will bring.
Technically, and in the short term, the EUR/USD pair seems comfortable above 1.2200, consolidating above the figure ever since late last week. In the 4 hours chart, the pair battled around a bullish 20 SMA before recovering the upside, still holding close to the indicator but well-above larger moving averages, limiting declines to corrective movements. Technical indicators in the mentioned chart are attempting to recover the upside, the Momentum from around its 100 level and the RSI from near 60, indicating that buying interest is increasing. Still, the pair would need to extend its advance beyond the 1.2270 region to confirm another advance ahead, with 1.2220 and 1.2250 as the next intraday targets/resistances. The main support is the 1.2200 figure, with a break below it pointing for a test of the 1.2150/60 region.
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