EUR/USD Forecast: Waiting for the Fed and the ECB

EUR/USD Current Price: 1.0853

• Poor European data released on Monday dented the market mood and weighed on the EUR.
• Market participants await the US Federal Reserve and the European Central Bank decisions.
• EUR/USD trades at the lower end of its recent range, holds above 1.0800.

The EUR/USD pair started the week with a soft tone, failing to retain intraday gains and ending Monday little changed in the 1.0850 region. The pair seesawed between gains and losses in a sluggish start to a tough week, as speculative interest awaits central banks’ announcements before committing one way or the other.

In the upcoming days, the United States Federal Reserve (Fed) and the European Central Bank (ECB) will announce their monetary policy decisions. The former is expected to curb further its tightening pace and proceed with a 25 bps rate hike, while the latter will likely go on with the fully priced-in 50 bps hike. Ahead of the announcements, a souring mood provided support to the US Dollar, further exacerbated by weak European macroeconomic figures.

Data released on Monday showed that 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 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 published the January Dallas Fed Manufacturing Business Index, which improved to -8.4 from -20 in December.

On Tuesday, the focus will be on German Retail Sales, foreseen up in December by 0.2% MoM, and the preliminary estimate of the Euro Zone Gross Domestic Product (GDP) for the last quarter of 2022. The United States, on the other hand, will release January CB Consumer Confidence expected to have improved to 109.1 from 108.3 in the previous month.

EUR/USD short-term technical outlook

The EUR/USD pair trades near the lower end of its latest range, although maintaining its bullish stance, according to the daily chart. The pair keeps developing well above a bullish 20 Simple Moving Average (SMA), which has extended its advance above a critical long-term support level at 1.0745, the 61.8% retracement of its 2022 yearly decline. At the same time, the 100 SMA aims to cross above the 200 SMA, both over 500 pips below the current level. Finally, technical indicators hold directionless within positive levels, skewing the risk to the upside without confirming an upcoming leg north.

According to the 4-hour chart, EUR/USD turned bearish, although its downward momentum is limited. The pair briefly traded above a flat 20 SMA but quickly eased below it. The 100 and 200 SMAs keep heading higher, well below the current level, while the Momentum indicator hovers directionless, just below its 100 line. The Relative Strength Index (RSI), however, turned firmly lower and currently stands at 45, supporting a near-term slide, particularly if the pair extends its decline below the 1.0830 level.

Support levels: 1.0830 1.0785 1.0745

Resistance levels: 1.0880  1.0930 1.0965  

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