EUR/USD Current Price: 1.0786
- The European Central Bank may consider slowing the pace of rate tightening.
- The German ZEW Survey showed Economic Sentiment improved in January.
- EUR/USD pierced the 1.0800 level and approaches a critical Fibonacci support level.
The EUR/USD pair plummeted mid-US session despite the broad US Dollar weakness. The Euro plunged following market talks suggesting European Central Bank (ECB) officials are considering slowing the pace of tightening. Rumors suggest President Christine Lagarde & co will opt for a 50 basis points (bps) rate hike in February, reducing hikes to 25 bps starting in March. EUR/USD currently trades near an intraday low of 1.0773.
Comments from European Central Bank chief economist Philip Lane also affected the Euro, as he said that to get interest rates back to their target levels and bring inflation back to the desired level, the central bank tightening will need to halt. However, he clarified that the central bank needs rates to reach restrictive levels, noting that they “need to raise rates more” before changing course.
Meanwhile, the US Dollar came under selling pressure amid a generalized decline in government bond yields following ECB rumors. The yield on the Italian 10-year note plunged over 15% in the day, pushing the US Treasury 10-year note benchmark rate to 3.52% from an intraday high of 3.58%.
Euro Zone and United States inflation
Data-wise, Euro Zone figures were mixed. Germany confirmed the December Harmonized Index of Consumer Prices (HICP) grew by 8.6% YoY. The country also published the January ZEW Survey, which showed that Economic Sentiment improved to 16.9 in the country and to 16.7 in the Euro Zone, much better than anticipated. However, the Current Situation index plunged to -58.6. Across the pond, the United States published the NY Empire State Manufacturing Index for January, which plummeted to -32.9 from -11.2 in December.
On Wednesday, the EU will release the final reading of the December Harmonized Index of Consumer Prices (HICP), expected to be confirmed rising by 9.2% YoY. The United States, on the other hand, will publish the December Producer Price Index (PPI), foreseen up by 5.9% YoY, down from the 6.2% increase posted in November. Additionally, the country will unveil December Retail Sales, expected to have added a modest 0.1%.
EUR/USD short-term technical outlook
The EUR/USD pair declined for a third consecutive day, but it holds above a critical Fibonacci support level, the 61.8% retracement of the 2022 yearly slide at 1.0745. Large stops should accumulate below the level, and if those get triggered, the slump could fan additional momentum.
From a technical point of view, the daily chart for EUR/USD indicates that bulls are not yet ready to give up. The pair keeps developing above its moving averages, with the 20 Simple Moving Average (SMA) heading firmly north, far above the longer ones, currently at around 1.0675. The Momentum indicator lacks directional strength while holding above its 100 level. Finally, the Relative Strength Index (RSI) indicator began retreating from overbought readings, heading lower but still within positive levels.
The near-term picture shows that the risk is skewing to the downside. EUR/USD broke below its 20 SMA, which lost its bullish strength, and it is developing some 50 pips below it. The longer moving averages maintain their bullish slopes, with the 100 SMA providing support at around 1.0690. At the same time, the Momentum indicator ticked higher but remains below its midline, while the RSI consolidates at around 47.
Support levels: 1.0745 1.0690 1.0640
Resistance levels: 1.0825 1.0870 1.0910
