EUR/USD faces some selling pressure near 1.0780, focus on US inflation

The upside momentum in EUR/USD now appears to have entered an impasse following recent peaks around 1.0780.

EUR/USD stays cautious ahead of US data

EUR/USD alternates gains with losses and struggles to extend the multi-session positive streak on Thursday, as market participants remain prudent prior to the publication of the US inflation figures for the month of December.

The CPI results are expected to shed more light on the probability of a Fed’s pivot in its current normalization process, while expectations of a 25 bps rate hike at the Fed’s next event on February 1 looks the most likely scenario according to CME Group’s FedWatch Tool.

In the euro docket, Germany will publish its Current Account figures, while weekly Initial Jobless Claims will complete the US calendar later on Thursday.

What to look for around EUR

EUR/US’s strong rebound faces an initial and decent resistance near the 1.0780 region so far.

In the meantime, the European currency is expected to closely follow dollar dynamics, the impact of the energy crisis on the region and the Fed-ECB divergence.

Back to the euro area, the increasing speculation of a potential recession in the bloc emerges as an important domestic headwind facing the euro in the short-term horizon.

Key events in the euro area this week: France final Inflation Rate, Germany Full Year GDP Growth, MEU Balance of Trade/Industrial Production (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. Impact of the war in Ukraine and the protracted energy crisis on the region’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is retreating 0.08% at 1.0747 and the breach of 1.0481 (monthly low January 6) would target 1.0443 (weekly low December 7) en route to 1.0424 (55-day SMA). On the upside, the next hurdle comes at 1.0776 (monthly high January 11) followed by 1.0786 (monthly high May 30 2022) and finally 1.0800 (round level).