EUR/USD Outlook: Not out of the woods yet, 1.1385 holds the key for short-term traders

• EUR/USD gained strong positive traction on Friday amid the post-NFP USD selling bias.
• Hawkish Fed, surging US bond yields limited the USD losses and capped gains for the pair.
• Market players now look forward to the US CPI report on Wednesday for a fresh impetus.

The EUR/USD pair witnessed fresh selling on the first day of a new trading week and eroded a part of Friday's strong gains to a four-day high. The shared currency was underpinned by encouraging Eurozone macro data, which, along with the post-NFP US dollar selling provided a goodish lift to the major. In fact, the headline CPI in the Eurozone accelerated to 5.0% in December, marking another record high since the record began in 1991. Separately, Eurozone retail sales surpassed expectations and rose 1.0% MoM in November.

The intraday buying interest picked up pace following the mixed release of the US monthly jobs report, showing that the economy added only 199K jobs in December as against 400K consensus estimates. This, to a larger extent, was offset by the fact that the unemployment rate fell more than expected to 3.9% from 4.2% in November and wages reported another month of strong growth. Nevertheless, the data reaffirmed expectations for an eventual Fed lift-off in March, which was evident from a fresh leg up in the US Treasury bond yields.

In fact, the yield on the benchmark 10-year Treasury note had touched the 1.80% threshold for the first time since January 2020. Adding to this, the US 2-year notes, which are highly sensitive to rate hike expectations along with 5-year notes, climbed to a two-year high. This helped revive the USD demand and exerted some downward pressure on the major during the Asian session on Monday. Market participants now look forward to the Eurozone Sentix Investor Confidence and Unemployment Rate for some trading impetus.

The focus, however, will remain on this week's release of the latest US consumer inflation figures, due on Wednesday. This, along with the monthly US Retail Sales data on Friday, will influence the USD price dynamics and help determine the near-term trajectory for the major.

Technical outlook

From a technical perspective, the pair remains confined well within a broader trading range held over the past one month or so. This constitutes the formation of a rectangle on the daily chart. Given the recent downfall, this might still be categorized as a bearish consolidation phase and supports prospects for a further near-term depreciating move. That said, repeated failures to find bearish acceptance below the 1.1300 mark warrants caution. Hence, it will be prudent to wait for some follow-through selling below the mentioned handle before placing fresh bearish bets.

The pair might then accelerate the downfall towards the trading range support, around the 1.1235-30 region. A convincing break below would then turn vulnerable to slide below the 1.1200 mark and retest 2021 low, around the 1.1185 region. The downward trajectory could further get extended towards the 1.1145-40 intermediate support en-route the 1.1100 round-figure mark.

On the flip side, any subsequent move up is more likely to confront stiff resistance near the 1.1385 region. This is closely followed by the 1.1400 mark, which if cleared decisively might trigger a short-covering move. The positive move could then get extended towards the next relevant resistance near the 1.1440-45 region. Bulls might eventually aim to reclaim the key 1.1500 psychological mark in the near term.