EUR/USD Forecast: Sellers to stay in control in case 1.0760 resistance holds

EUR/USD has staged a modest rebound early Wednesday after having met support near 1.0700 on Tuesday. The pair's near-term technical outlook suggests that the bearish bias stays intact but an extended recovery could be witnessed in case sellers fail to defend 1.0760.

On Tuesday, mixed comments from European Central Bank (ECB) officials made it difficult for the Euro to outperform its rivals. ECB policymaker Francois Villeroy de Galhau said that they were not very far from the peak of inflation. On a hawkish note, policymaker Joachim Nagel reiterated that further, significant rate hikes will be needed, adding that the ECB rates are not yet restrictive. Finally, ECB Executive Board Member Isabel Schnabel adopted a neutral tone by saying that the ECB interns to raise key rates by 50 basis points (bps) in March while not committing to any additional policy action afterward.

On the other hand, FOMC Chairman Jerome Powell acknowledged that the January jobs report was stronger than anyone expected. Powell added that they may need to do more on rates if they continue to get strong labour market or higher inflation data. 

The chairman comments, however, don't seem to be having a significant impact on rate hike expectations. The CME Group FedWatch Tool points to a nearly 70% probability of two 25 bps hikes in March and May, virtually unchanged from before Powell's interview.  

There won't be any high-tier macroeconomic data releases on Wednesday and investors will keep a close eye on central bank speak. New York Fed President Williams, Atlanta Fed President Bostic and Minneapolis Fed President Kashkari will be delivering speeches later in the day. The market positioning suggests that the US Dollar has the potential to continue to gather strength in case Fed commentary causes markets to continue to price in a rate increase in May. On the other hand, an optimistic tone inflation outlook could limit the currency's gains and allow EUR/USD to extend its upward correction.

In the meantime, US stock index futures trade mixed in the early European session. Wall Street's main indexes registered strong gains on Tuesday and the continuation of the risk rally in the second half could weigh on the US Dollar and vice versa.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart stays below 50 after having climbed out of the oversold territory below 30, suggesting that EUR/USD's recent rebound is a technical correction rather than the beginning of a reversal.

On the upside, 1.0760 (200-period Simple Moving Average (SMA), 20-period SMA, Fibonacci 50% retracement of the latest uptrend) aligns as key resistance. If the pair rises above that level and starts using it as support, it could continue to push higher toward 1.0800 (psychological level, static level) and 1.0820 (Fibonacci 38.2% retracement).

1.0700 (psychological level, Fibonacci 61.8% retracement) acts as strong support as confirmed by Tuesday's price action. A four-hour close below that level could open the door for an extended decline toward 1.0645 (static level) and 1.0600 (psychological level, static level).