EUR/USD Forecast: Bears determined to push it lower

EUR/USD Current price: 1.0703

• Market players are concerned the timing for rate cuts will be further extended.
• Stock markets struggle to revert recent losses, yields remain near fresh highs.
• EUR/USD consolidates at around 1.0700, has scope to extend the slump.

The EUR/USD pair struggles around the 1.0700 mark on Wednesday as the US Dollar maintains the firm footing triggered by higher-than-anticipated United States (US) inflation. Financial markets turned risk-averse on Tuesday following the release of the US Consumer Price Index (CPI), which rose beyond expectations in January. The figures supported the Federal Reserve’s (Fed) case of waiting longer before loosening the monetary policy through rate cuts. Stocks plummeted and government bond yields soared, resulting in the 10-year Treasury note offering as much as 4.31%, its higher since last December.

Fears receded during Asian trading hours, with local stocks trading with a better tone and limiting USD gains. Government bond yields are also down ahead of Wall Street’s opening, with the 10-year note currently offering 4.29%.

Meanwhile, European Central Bank (ECB) officials commented on monetary policy. ECB Vice-President Luis de Guindos said on Wednesday that while the Eurozone inflation appears to be heading back to 2%, policymakers should not get ahead of themselves. “It will take some more time before we have the necessary information to confirm that inflation is sustainably returning to our 2% target,” de Guindos noted. Also, Governing Council member Boris Vujcic added that the central bank seems to be getting the inflation fight “right,” refraining from commenting on the timing for a policy shift.

Data-wise, the EU published December Industrial Production, up 2.6% MoM against a 0.2% slide anticipated. The second estimate of the EU Gross Domestic Product (GDP) was confirmed at 0% QoQ and at 0.1% YoY as previously calculated. The US will not release relevant data, although several ECB and Fed speakers will be on the wires.

EUR/USD short-term technical outlook

The EUR/USD pair traded as low as 1.0694, a level that was last seen in mid-November. The daily chart shows it is marginally lower from its opening level and that it is developing below all its moving averages. The 20 Simple Moving Average (SMA) has already crossed below a flat 200 SMA, while the 100 SMA remains directionless at around 1.0790, reflecting the prevalent selling interest. On the other hand, technical indicators lack directional momentum and are currently consolidating near oversold readings.

The bearish case dominates the near term. The 4-hour chart shows EUR/USD develops far below firmly bearish moving averages, with the 20 SMA providing resistance at around 1.0750. Finally, technical indicators have lost their downward strength but are far from suggesting a possible reversal, consolidating near their recent lows.

Support levels: 1.0695 1.0650 1.0610

Resistance levels: 1.0750 1.0790 1.0840  

(This story was corrected on February 14 at 13:15  GMT to say that “The figures supported the Federal Reserve’s (Fed) case of waiting longer before loosening the monetary policy through rate cuts,” previously reported as “tightening the monetary policy.”)