EUR/USD and a Return to $1.08 in the Hands of the ECB and Fed Chatter

It is a relatively quiet day ahead for the EUR/USD. On the economic data front, trade data from Italy and Spain will be in focus. Following the narrowing of the Eurozone trade deficit to €8.8 billion, the markets will expect a similar trend to support the more optimistic economic outlook.

However, while today’s stats will draw investor interest, the ECB Economic Bulletin will likely influence the EUR/USD more.

In January, the ECB Economic Bulletin delivered a less gloomy outlook, pointing to a shallow and short-lived euro area economic recession. Economic indicators from the euro area have supported the more upbeat outlook, with the Eurozone private sector returning to growth in January, according to prelim figures.

With inflation elevated and economic indicators delivering a more optimistic outlook, the ECB will likely continue the hawkish rhetoric through the remainder of the quarter.

With plenty for the markets to consider, investors need to monitor ECB member speeches. ECB Executive Board Members Fabio Panetta and Luis de Guindos will speak, with ECB Chief Economist Philip Lane also in the spotlight. We expect comments from Philip Lane to garner more interest.

EUR/USD Price Action

At the time of writing, the EUR/USD was up 0.01% to $1.06877. A mixed start to the day saw the EUR/USD fall to an early low of $1.06830 before rising to a high of $1.06907.

Technical Indicators

The EUR/USD needs to move through the $1.0697 pivot to target the First Major Resistance Level (R1) at $1.0734 and the Wednesday high of $1.07445. A return to $1.07 would signal a bullish session. However, the EUR/USD would need ECB member chatter and today’s stats to support a breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0781. The Third Major Resistance Level (R3) sits at $1.0865.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0650 in play. However, barring a data-fueled sell-off, the EUR/USD pair should avoid sub-$1.06. The Second Major Support Level (S2) at $1.0612 should limit the downside.

The third Major Support Level (S3) sits at $1.0529.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The EUR/USD sits below the 50-day EMA ($1.07402). Following the bearish cross on Wednesday, the 50-day EMA pulled back from the 200-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A breakthrough R1 ($1.0734) would give the bulls a run at the 50-day EMA ($1.07402) and the 200-day ($1.07410). A move through the 50-day EMA would send a bullish signal and bring R2 ($1.0781) into view. However, failure to move through the 50-day EMA ($1.07402) would leave S1 ($1.0650) in view.

The US Session

It is a busy day on the US economic calendar. Following the US CPI Report on Tuesday, investor focus shifts to US wholesale inflation numbers for January and the weekly jobless claims figures.

With the markets expecting the Fed to push rates above 5%, softer inflation numbers and a spike in jobless claims could test the theory.

Other stats include housing sector numbers and the Philly Fed Manufacturing PMI. An unexpected slide in the headline PMI and a jump in prices paid would influence market risk sentiment.

FOMC member speeches will also need consideration, with members Loretta Mester and James Bullard speaking today. A shift in forward guidance would move the dial.