EUR/USD Forecast: ECB officials repeat their hawkish message

EURUSD Weekly Forecast: Bulls in charge amid Federal Reserve's imminent pivot

EUR/USD Current Price: 1.0735

  • European Central Bank policymakers reaffirmed the well-known hawkish message.
  • Stock markets are in better shape on Wednesday, but the FX board shows no reaction.
  • EUR/USD trades in a tight range for a second consecutive day, maintaining the upward pressure.

Major pairs continue struggling for direction, with EUR/USD suck around 1.0740. The pair remained indifferent to the multiple central banks’ speakers that hit the wires since the year started, as most comments came in line with what market players believe.

European Central Bank (ECB) policymakers spoke on Wednesday. On the one hand, French central bank governor Francois Villeroy de Galhau said the ECB should aim to reach the terminal rate by the summer, confirming they would have to raise rates further in the coming months. On the other hand, Governor of Austria’s central bank Robert Holzmann opted for a more aggressive stance, noting that “rates will have to rise significantly further to reach levels that are sufficiently restrictive to ensure a timely return of inflation to target.” He finally added that it’s too early to discuss a possible terminal rate.

Federal Reserve (Fed) officials speaking earlier in the week delivered hawkish messages. United States policymakers are aligned with the idea of inflation still being too high, and therefore, more rate hikes are needed to combat it.

Stock markets are in a better shape on Wednesday, as most Asian and European indexes trade in the green. However, US futures remain mute, hovering around yesterday’s closing levels. Also, Treasury yields pared gains, with the 10-year note currently yielding 3.58% and the 2-year note offering 4.23%.

The macroeconomic calendar had nothing relevant to offer through European hours, while the United States one is also scarce, as the country published MBA Mortgage Approvals for the week ended January 6, which rose 1.2% after falling by 10.3% in the previous week.

EUR/USD short-term technical outlook

The EUR/USD pair keeps finding sellers at around 1.0760 while seesawing around the 61.8% Fibonacci retracement of the 2022 slump at 1.0745. The daily chart shows that EUR/USD has made little progress for a second consecutive day, although also that bulls retain control. The pair develops above all of its moving averages, while the 20 Simple Moving Average (SMA) still advancing above the longer ones. At the same time, technical indicators hold their ground, standing directionless within positive levels.

Technical readings in the 4-hour chart reflect the absence of bullish strength but also reflect bulls’ control. The 20 SMA advances almost vertically above the longer ones, providing dynamic support at around 1.0690. The Momentum indicator keeps easing but remains above its midline, while the Relative Strength Index (RSI) indicator barely eased, currently hovering around 62. A corrective decline could reach 1.0630, where buyers are likely to resume buying.

Support levels: 1.0690 1.0630 1.0590

Resistance levels: 1.0765 1.0800 1.0845

View Live Chart for the EUR/USD

Written by Judith Nistro