EUR/USD Forecast: Bulls hold the grip but turn cautious

EUR/USD Current Price: 1.0900

• Central banks' decisions and the US Nonfarm Payrolls report stand out this week.
• Euro Zone macroeconomic news painted a gloomy picture ahead of the ECB decision.
• EUR/USD retains the bullish stance, although market participants are on the sidelines.

The US Dollar started the week with a firm footing, mounted on upbeat data released late last week. On the one hand, the Gross Domestic Product (GDP) showed that the United States economy grew at a faster-than-anticipated pace in the final quarter of 2022. On the other, Core PCE prices, excluding food and energy, rose at an annual pace of 4.4% in December, decreasing from 4.7% in November and in line with the market expectations. The EUR/USD pair fell to an intraday low of 1.0852, changing course during European trading hours to currently trade around the 1.0900 threshold.

The Euro advanced despite bad news from the Euro Zone (EU). The German economy grew at an annualized pace of 1.1% in the last quarter of 2022, missing expectations of 1.3%. Also, as reported by the Harmonized Index of Consumer Prices (HICP), Spanish inflation unexpectedly rose by 5.8% YoY in January, an alarm bell ahead of the European Central Bank (ECB) monetary policy meeting later this week. On a positive note, the EU Economic Sentiment Indicator improved more than anticipated in January, hitting 99.9 from 97.1 in the previous month.

The United States will later publish the January Dallas Fed Manufacturing Business Index, previously at -16.6, but the macroeconomic calendar will remain light until next Wednesday when the US Federal Reserve (Fed) will announce its decision on monetary policy. The week will also include the Bank of England (BoE) monetary policy decision and the US Nonfarm Payrolls report.

Ahead of Wall Street's opening, the US Dollar founds mild support on raising US government bond yields. The 10-year Treasury note currently offers 3.55%, while the yield on the 2-year note stands at 4.24%. Meanwhile, European indexes seesaw between gains and losses, while their US counterparts are poised to start the day in the red.

EUR/USD short-term technical outlook

From a technical point of view, the EUR/USD pair is in a consolidative phase, trading just below the multi-month high posted last week at 1.0928 while above the 1.0800 threshold. A more relevant support level comes at 1.0745, the 61.8% retracement of the 2022 yearly slump. According to the daily chart, the risk is skewed to the upside. EUR/USD is developing above a bullish 20 Simple Moving Average (SMA), which advances above the aforementioned Fibonacci level. At the same time, technical indicators hold above their midlines, although lacking directional strength.

In the near term, and according to the 4-hour chart, EUR/USD is neutral. The pair holds above a flat 20 SMA while the longer moving averages maintain upward slopes well below the shorter one. Technical indicators, in the meantime, head nowhere at around their midlines, reflecting the absence of speculative interest. The pair could gain bullish momentum once above 1.0930, although it seems more likely investors will remain in cautious mode ahead of the significant events scheduled for later in the week.

Support levels: 1.0870 1.0825 1.0780

Resistance levels: 1.0930 1.0965 1.1000

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