EUR/USD: Volatile within range sub-1.2300 ahead of German data

• Hawkish ECB-speak supports.
• Eyes on German and US data

The EUR/USD pair extended its overnight side trend into Asia, wavering back and forth in a 30-pips narrow range, as the bulls consolidated yesterday’s rally to fresh multi-year tops just shy of the 1.23 handle.

The EUR got a fresh boost from the hawkish comments from the ECB policymaker Ardo Hansson, who noted: “Euro appreciation will not threaten the inflation outlook reflects what seems to be emerging amongst the more hawkish members of the council – that exchange rate appreciation may help bring greater monetary balance to areas that are growing strongly," as cited by the analysts at ANZ.

Kathy Lien at BK Asset Management, explains: The ECB could change its guidance early this year if data continues to improve and even though we believe that the recent strength of the euro will raise red flags for the central bank especially in conjunction with rising German bond yields, until they actually express concern, there's no reason for the euro to stop rising, particularly this week.”

Meanwhile, underlying broad USD weakness continued to keep the tone underpinned by the main currency pair amid converging monetary policy outlooks. Further, holiday-thinned trading from the US exaggerated moves in currencies driven by low liquidity. 

Valeria Bednarik, Chief Analyst at FXStreet, notes: “This Tuesday, German's inflation figures will take center stage, while the US will only offer the NY Empire State manufacturing index.”

Germany’s flash CPI estimate of 1.7% y/y is likely to be confirmed; that is a tick lower than November’s but in striking distance of the ECB’s 2.0% y/y price target.

EUR/USD Technical Levels

Bednarik adds: “A corrective movement seems likely on a break below Friday's high at 1.2218, the immediate support, which can reach 1.2150, where buying interest is expected to resurge. Beyond 1.2300, on the other hand, the advance will likely continue, with speculative interest then targeting 1.2500. Support levels: 1.2220 1.2180 1.2150. Resistance levels: 1.2300 1.2340 1.2375.”