- EUR/USD has stabilized just above 1.1400, having pulled back from the previous session’s highs at 1.1480.
- Techs will be watching for a key support level in the 1.1380 area.
The sale of EUR/USD has continued in the US trading session, although the intraday bearish momentum has subsided for the time being with the pair finding support above the important psychological level of 1.1400. Currently trading at 1.1410, down 0.4% and 0.6% below Asian session highs at 1.1480. Technical indicators will be watching for support at the 1.1380 area in the form of late November/December highs. Some EUR/USD bulls are hoping that after this week’s bullish breakout from the ascending triangle in late November/December, a retest of this key support area could prove to be an excellent entry point to reload longs and target to a move towards 1.1500.
Given the low volumes and tight liquidity conditions typical of recent Friday trading, such a move would likely have to wait until next week. Some might argue that Friday’s fundamental developments (weaker-than-expected December US retail sales and January consumer sentiment figures) suggest a higher EUR/USD makes sense. But the short-term weakness, which will in part be a reflection of rising US Omicron infections, will not worry the Fed, which is much more focused on elevated inflation and a tight labor market.
While there will be no further statements from Fed members next week as the central bank will have gone into blackout ahead of the January meeting, the recent hawkish stance from FOMC members is likely to remain a key talking point among market participants and presents an upside risk for the USD. Dollar bulls who are betting that the Fed/ECB policy divergence will weigh on EUR/USD this year may see current levels above 1.1400 as attractive to add short positions and point to a move towards the lows of November/December in the area of 1.1200.