EUR/USD Analysis: Bulls manage to defend 50-day SMA/ascending channel confluence support

The EUR/USD pair struggles to capitalize on the overnight modest bounce from a nearly one-month low and oscillates in a narrow band, below mid-1.0700s through the Asian session on Wednesday. The downside, however, remains cushioned amid a softer tone surrounding the US Dollar. Fed Chair Jerome Powell failed to offer fresh hawkish signals on Tuesday and reiterated that the disinflation process was underway. This, in turn, fueled speculations that interest rates may not rise much further, which is evident from a modest downtick in the US Treasury bond yields and acts as a headwind for the greenback.

The shared currency, on the other hand, draws some support from the prospects for additional jumbo rate hikes by the European Central Bank (ECB). ECB Governing Council member Francois Villeroy de Galhau said the improved economic situation in Eurozone makes it easy to fight inflation with monetary policy. Furthermore, ECB policymaker Isabel Schnabel noted that inflation momentum remains quite elevated and that the central bank intends to raise rates by 50 bps in March. Hence, the focus will remain glued on the release of the Preliminary German consumer inflation figures on Thursday.

In the meantime, the prevalent cautious mood could support the safe-haven buck and keep a lid on any meaningful upside for the EUR/USD pair. The market sentiment remains fragile amid worries about economic headwinds stemming from rising borrowing costs, surging COVID-19 cases in China, the protracted Russia-Ukraine war and fears about worsening US-China relations. Amidst growing tension with China over a suspected surveillance balloon, US President Joe Biden, during his State of the Union address on Wednesday, said that the US would act to protect if China threatens its sovereignty.

The aforementioned mixed fundamental backdrop makes it prudent to wait for solid follow-through buying before confirming that the EUR/USD pair's recent pullback from a nine-month top has run its course. In the absence of any relevant market-moving economic releases, either from the Eurozone or the US, traders on Wednesday will take cues from speeches by influential FOMC members. This, along with the broader risk sentiment, will drive the USD demand and provide some impetus to the major.

Technical Outlook

From a technical perspective, the EUR/USD pair on Tuesday showed resilience below confluence support comprising the 50-day SMA and the lower end of a nearly three-month-old ascending channel. That said, oscillators on the daily chart have just started gaining negative traction and support prospects for further losses. Meanwhile, the 1.0700 mark will likely act as immediate support ahead of the overnight swing low, around the 1.0670-1.0665 region. Sustained weakness below the latter will confirm a near-term bearish breakdown and drag spot prices to the 1.0600 mark en route to the 1.0575-1.0570 support zone.

On the flip side, any subsequent move up will likely confront some hurdle near the 1.0775 area ahead of the 1.0800 round figure. This is followed by the 1.0850-1.0860 resistance zone, which, if cleared decisively, will negate any near-term bearish bias. The EUR/USD pair might accelerate the momentum towards the 1.0900 mark and test the next relevant barrier near the 1.0930 region. Bulls might eventually aim to conquer the 1.1100 psychological mark.