EUR/USD analysis: recovery continues after correction to 1.2200

Valeria Bednarik FXStreet

EUR/USD Current price: 1.2254

ECB's Villeroy said that EUR's strength adds uncertainty to the future of monetary policy.
EU CPI and US industrial figures, alongside with Fed's speakers taking center stage.

The EUR/USD pair retreated this Tuesday after an almost 400 pips' rally, undermined by profit-taking and political headlines coming from Germany, as the SDP party rejected coalition talks with Merkel's conservatives, over migration policies' divergences. The greenback ticked higher against most of its major rivals but retreated later in the day, as demand for the American currency remains subdued. The pair hit a daily low of 1.2194, but bounced back to settle around 1.2250, helped by a softer-than-expected US NY Empire State manufacturing index, which fell to 17.7 in January, from an upwardly revised 19.6 in December. Despite missing market's expectations, the report continues indicating solid growth in business activity in the region. This Tuesday, another ECB official tried to pour cold water over an overheating EUR, as Villeroy hit the wires stating that the latest EUR's appreciation has added uncertainty to the future of monetary policy, adding that inflation has not yet reached the central bank's target.

Euro area December CPI and US industrial figures, alongside with a couple of Fed's speaker will take center stage this Wednesday. EU inflation is expected to have risen 0.4% MoM and 1.4% YoY, confirming Villeroy's comments.

The pair bounced from the 23.6% retracement of its previous daily bullish run, suggesting this Tuesday's decline was a correction in the middle of the bullish trend and therefore leaving doors open for higher highs beyond the 1.2300 figure. In the 4 hours chart, the 20 SMA has kept advancing below the current level, maintaining its bullish slope above the 38.2% retracement of the mentioned run, while the RSI indicator regained the upside after correcting extreme overbought conditions, now heading back up at 71. The Momentum indicator lost its bearish slope above the 100 level, further indicating the absence of selling interest. A steady recover above 1.2265 should favor another leg higher that could extend up to 1.2340 this Wednesday.

Support levels: 1.2200 1.2155 1.2110

Resistance levels: 1.2265 1.2300 1.2340

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Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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