EUR/USD technical analysis: Technical Tuesday – January 9, 2024

EUR/USD technical analysis: rates contained inside 1.09 support and 1.10 resistance
Euro hurt by German factory data
All eyes on US CPI

With everyone waiting for the release of inflation data this week, the EUR/USD has been stuck in a very tight range over the past few days. Today it was hit by news out of Germany, where industrial production unexpectedly fell 0.7% month-over-month, adding to the 0.4% decline recorded in the month prior. The data points to the Eurozone’s largest economy heading towards a technical recession. The data does help increase the likelihood of a sooner-than-expected rate cut by the ECB. Still, the stronger direction is going to come from the USD side of the equation. Key inflation data should trigger a sharp move in latter half of the week.

We will discuss CPI later, but first let’s have a quick look at the EUR/USD chart…

EUR/USD technical analysis

From a technical point of view, the EUR/USD's overall technical stance remains bullish on longer-term time frames. However, the trend is lacking any real momentum and will need some fundamental stimulus to help drive it higher, if wants to maintain is bullish trend. Still, for as long as it maintains its position above the 200-day average, the path of least resistance will be to the upside.

From here, the next short-term support level is seen around 1.09 handle, with the 200-day simple average standing at 1.0845. Resistance comes in around 1.0950 followed by 1.1000.

EUR/USD analysis: All eyes on US CPI

The market initially thought there was a sure shot of a rate cut in March, pricing it at nearly 100% probability at the end of December. However, the Fed suggested the cut might happen later in the year. The FOMC's talk of three rate cuts in 2024 led to highs in US stock indices, lower bond yields, and a weaker dollar. Last week saw investors trim their rate-cut bets and this caused the dollar to jump. But it looks like the probability of cut is increasing again, after the post-NFP volatility. This week's evaluation is crucial, and upcoming CPI data is expected to sway expectations on rate cuts. The EUR/USD could climb above 1.10 if inflation were to drop for the third month in a row from December's 3.1% year-on-year figure. However, expectations point to a rise to 3.2%, which, if seen, could keep the dollar supported.

The dollar has lost a bit of its momentum from last week, when it ended the first week of the year on a high note as investors pulled back on expectations of a March rate cut by the Federal Reserve. Starting this week with some strength against most G10 currencies, the greenback wavered before closing lower on Monday. At the time of writing on Tuesday, it was finding renewed strength. Market uncertainty increased with conflicting US data, where a less impressive nonfarm payrolls beat and a notably weaker ISM survey triggered selling of the dollar longs that were accumulated throughout last week. Since Friday, we haven’t had any major news or central bank speeches from the US to impact the direction of the dollar meaningfully. But weaker foreign data, including today’s German factory data, has helped to keep the greenback in the positive for the month, ahead of the upcoming December CPI and PPI reports at the end of this week.

EUR/USD technical analysis video

Video analysis on EUR/USD, AUD/USD, Dollar Index, gold, silver, FTSE and DAX:

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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