EUR/USD Forecast: Euro bulls refuse to give up

Following the sharp decline witnessed in the American session on Tuesday, EUR/USD has managed to regain its traction and advanced to the 1.0900 area early Wednesday. The near-term technical outlook shows that sellers are struggling to dominate the pair's action.

S&P Global reported on Tuesday that the business activity in the US private sector continued to contract in early January. The underlying details of the PMI surveys revealed that input cost inflation has accelerated amid rising wages and helped the US Dollar outperform its rivals.

Nevertheless, PMI data did little to nothing to ease recession fears and the probability of the Fed staying on hold in May after two 25 basis points (bps) rate increases in February and March remained largely unchanged at around 60%. In Turn, the US Dollar Index ended up closing the day flat slightly below 102.00.

Meanwhile, hawkish comments from European Central Bank (ECB) policymaker Gediminas Simkus helped the Euro hold its ground. Simkus argued that the ECB should continue with 50 bps rate hikes amid growing wage pressure and added that reaching the peak policy rate before summer 'may be unlikely.'

IFO business sentiment survey from Germany will be featured in the European economic docket, which is expected to reveal a modest improvement in business climate. In the second half of the day, there won't be any high-tier data releases from the US.

It's worth noting that the Bank of Canada (BOC) will announce its policy decision later. The BOC is expected to raise its policy rate by 25 bps to 4.5%. If the BOC says that they will keep the rates on hold from this point on, that decision could feed into the Fed pivot narrative and hurt the US Dollar. On the other hand, a hawkish tilt from the BOC with the bank voicing its concerns over the inflation outlook should weigh on risk sentiment and cause EUR/USD to stretch lower by providing a boost to the US Dollar.

EUR/USD Technical Analysis

EUR/USD returned within the ascending regression channel following the US PMI-inspired decline on Tuesday. Additionally, the Relative Strength Index (RSI) indicator rose above 50, confirming the view that buyers look to retain the control of the pair's action.

On the upside, 1.0900 (mid-point of the ascending channel, psychological level) aligns as key resistance. Once EUR/USD rises above that level and starts using it as support, it could target 1.0940 (upper limit of the ascending channel) and 1.0980 (former support, static level).

1.0860 (20-period Simple Moving Average (SMA), lower limit of the ascending channel) forms the first support. With a four-hour close below that level, EUR/USD could test 1.0840 (50-period SMA) and continue to push lower toward 1.0800 (psychological level) afterward.