EUR/USD Forecast: Corrective decline could extend towards 1.0630

EUR/USD Current Price: 1.0717

• Fading optimism weighs on global stocks and benefits the US Dollar.
• Market players await words from US Federal Reserve Chair Jerome Powell.
• EUR/USD retreats from a critical Fibonacci resistance level, but bears remain side-lined.

The EUR/USD pair trades in a tight range, below a daily high at 1.0751. The market optimism that dominated the start of the week faded ahead of Tuesday's opening. Wall Street trimmed gains and finished  Monday mixed, with only the Nasdaq Composite posting gains. Asian stocks also trade mixed, but European ones remain in the red, dragging US futures lower.

However, given the absence of a strong catalyst, movements across the FX board remain limited. The US Dollar is marginally higher, backed by the dismal mood and an uptick in Treasury yields. Market players are waiting for an update on United States inflation, as the country will publish the December Consumer Price Index (CPI) next Thursday. The annual reading is seen at 6.5%, decreasing from 7.1% YoY in the previous month.

So far, the US published the December NFIB Business Optimism Index, which declined to 89.8 from 91.9 in the previous month. The country will later release IBD/TIPP Economic Optimism for January and November´s Wholesale Inventories. More relevantly, US Federal Reserve (Fed) Chair Jerome Powell will participate in a panel discussion titled "Central bank independence and the mandate – evolving views" at the Riksbank's International Symposium on Central Bank Independence in Sweden.  

EUR/USD short-term technical outlook

The EUR/USD pair cannot break above the 1.0740 price zone, where it has the 61.8% Fibonacci retracement of its 2022 decline. The daily chart shows that the pair is barely down but still far above bullish moving averages. The 20 SMA advances above the longer ones and provides dynamic support at around 1.0630. Technical indicators, in the meantime, hold directionless within positive levels, reflecting limited selling interest.

In the near term, and according to the 4-hour chart, the ongoing slide seems corrective. The pair trades above all of its moving averages, and with the 20 SMA crossing above the 100 SMA, developing some 100 pips below the current level. At the same time, technical indicators turned marginally lower, retreating from overbought levels but still far from their midlines and without enough strength to support a steeper decline.

Support levels: 1.0685 1.0630 1.0590

Resistance levels: 1.0750 1.0795 1.0800

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