The EUR/USD pair plummeted to 1.0668, its lowest level since early January, before regaining ground ahead of the US close. Despite European policymakers’ hawkish rhetoric, the Euro was one of the weakest US Dollar rivals. Joachim Nagel, a European Central Bank (ECB) policymaker, stated that ECB rate cuts are unlikely in the near future and that the central bank’s rates are not currently restrictive. He went on to say that “substantial” hikes are required. Furthermore, Isabel Schnabel, an ECB’s Executive Board member, said she plans to raise rates by 50 basis points in March.

The spotlight stayed on Federal Reserve Chair Jerome Powell, as market participants remained wary of the possibility of a rate cut from the American central bank before the end of the year. However, the chances have lessened following the most recent central bank meeting and the pending January jobs data. Powell began repeating his hawkish stance, indicating that they would likely need to raise interest rates further, adding that the process would be “bumpy.”

The market embraced Powell’s message that stronger-than-expected data would result in the Fed boosting interest rates. The US dollar declined as Wall Street rose, causing the EUR/USD to recover to 1.0766. Nonetheless, he cautioned that strong labor market data or higher inflation data would lead to the Fed hiking rates by more than what is now factored in. The US dollar recovered as stocks fell to new daily lows.

Regarding data, Germany announced December Industrial Production, which declined 3.1% in the month and 3.9% year on year, far worse than expected. The US issued its December Goods and Services Trade Balance, which showed a smaller-than-expected deficit of $67.4 billion. The economic calendar will be light on Wednesday since the Eurozone will not publish key data, and the US will only release small reports. Nonetheless, several Federal Reserve presenters will be broadcast.

EUR/USD Technical Outlook

Yesterday, the EUR/USD pair experienced slight downward movements, which allowed it to test the EMA50. The stochastic indicator showed positive momentum, signaling the potential for the price to resume its primary bullish trend with a target of 1.1030.

Our bullish outlook remains intact for the near future, but if the price breaks below 1.0845, it may test the 1.0745 level before attempting to recover.

The estimated trading range for today is between 1.0800 as a support level and 1.0970 as a resistance level. The projected trend for today is bullish.