EUR/USD Post-ECB Decline Vulnerable to Test of December Low

US Dollar Outlook: EUR/USD

EUR/USD is under pressure following the European Central Bank (ECB) meeting as the Governing Council insists that Euro Area ‘interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution’ in achieving its one and only mandate for price stability.

EUR/USD Post-ECB Decline Vulnerable to Test of December Low

EUR/USD approaches the monthly low (1.0822) as the ECB emphasizes that ‘future decisions will ensure that our policy rates will be set at sufficiently restrictive levels for as long as necessary,’ and the exchange rate may struggle to retain the advance from the December low (1.0724) amid the string of failed attempts to trade back above the 50-Day SMA (1.0914).

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As a result, EUR/USD may extend the decline from the start of the month as it no longer responds to the positive slope in the moving average, and the Relative Strength Index (RSI) may continue to show the bullish momentum abating as indicator sits at its lowest level since October.

US Economic Calendar

FOREX.com Economic Calendar

With the ECB meeting out of the way, the update to the US Personal Consumption Expenditure (PCE) Price Index may sway EUR/USD as the core rate, the Federal Reserve’s preferred gauge for inflation, is seen narrowing to 3.0% in December from 3.2% per annum the month prior.

Another slowdown in the core PCE may generate a bearish reaction in the Greenback as it raises the Fed’s scope to unwind the restrictive policy sooner rather than later, but a higher-than-expected print may drag on EUR/USD as it puts pressure on the Federal Open Market Committee (FOMC) to keep US interest rates higher for longer.

With that said, data prints coming out of the US may sway EUR/USD ahead of the Fed rate decision on January 31 as the central bank seems to at the end of its hiking-cycle, but the exchange rate may struggle to retain the advance from the December low (1.0724) amid the string of failed attempts to trade back above the 50-Day SMA (1.0914).

EUR/USD Chart – Daily

Chart Prepared by David Song, Strategist; EUR/USD on TradingView

• EUR/USD approaches the monthly low (1.0822) as it no longer responds to the positive slope in the 50-Day SMA (1.0914), with a break/close below 1.0790 (61.8% Fibonacci retracement) raising the scope for a move towards the December low (1.0724).
• The Relative Strength Index (RSI) may continue to show the bullish momentum abating as indicator sits at its lowest level since October, with the next area of interest coming in around 1.0610 (38.2% Fibonacci retracement) to 1.0650 (78.6% Fibonacci retracement).
• Nevertheless, EUR/USD may track the December range if it continues to hold above 1.0790 (61.8% Fibonacci retracement), with a move above the 1.0870 (23.6% Fibonacci extension) to 1.0880 (23.6% Fibonacci extension) region bringing the 50-Day SMA (1.0914) back on the radar.

Additional Market Outlooks

US Dollar Forecast: USD/JPY Falls amid Struggle to Test Monthly High

US Dollar Forecast: AUD/USD Rebound Eyes Test of 50-Day SMA

--- Written by David Song, Strategist

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