EUR/USD meets resistance around 1.0900 ahead of US docket

After a brief test of the 1.0900 region earlier in the session, EUR/USD now comes under some mild downside pressure and revisits the 1.0880 zone at the end of the week.

EUR/USD: Near-term top at 1.0930?

EUR/USD seems to have met some resistance zone in the area of multi-month peaks near 1.0930 (January 26) amidst the broad-based consolidative mood in the global markets and some lacklustre recovery in the greenback.

On the latter, better-than-expected results from key US fundamentals on Thursday lent support to the buck and prevented the USD Index (DXY) from shedding further ground, which eventually morphed into the ongoing corrective decline in spot.

However, the ongoing debate between what markets believe the Fed should do – namely an impasse in its normalization process – and what the Fed’s rate setters think it is appropriate – again, raising rates above 5% and staying there longer than anticipated – remains poised to dominate the price action in the pair at least until the next week, where both the FOMC and the ECB meets to decide on rates.

In the domestic calendar, Consumer Confidence in France eased a tad to 80 in January (from 81) and the Spanish GDP Growth Rate surprised to the upside at 0.2% QoQ in Q4 and 2.7% over the last twelve months. In addition, Chairwoman Lagarde is also due to speak.

Across the pond, a busy calendar will show inflation figures gauged by the PCE followed by the final Michigan Consumer Sentiment, Pending Home Sales and Personal Income/Spending.

What to look for around EUR

The sharp yearly rally in EUR/USD appears to have met an initial and decent barrier around the 1.0930 for the time being.

In the meantime, price action around the European currency should continue to closely follow dollar dynamics, as well as the potential next steps from the ECB and the Federal Reserve at their upcoming gatherings in the next week.

Back to the euro area, recession concerns now appear to have dwindled, which at the same time remain an important driver sustaining the ongoing recovery in the single currency as well as the hawkish narrative from the ECB.

Key events in the euro area this week: France Consumer Confidence, ECB Lagarde (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle amidst dwindling bets for a recession in the region and still elevated inflation. Impact of the war in Ukraine and the protracted energy crisis on the bloc’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is retreating 0.04% at 1.0883 and the breakdown of 1.0766 (weekly low January 17) would target 1.0598 (55-day SMA) en route to 1.0481 (monthly low January 6). On the other hand, the next up barrier is seen at 1.0929 (2023 high January 26) followed by 1.0936 (weekly high April 21 2022) and finally 1.1000 (round level).