EUR/USD struggles to defend 1.1400 amid mixed concerns on US holiday

• EUR/USD retreats from intraday high, consolidates the biggest daily fall in two weeks.
• Omicron woes recede in the West but Fed rate-hike concerns weigh on sentiment, DXY seesaws after bouncing off nine-week low.
• ECB’s Lagarde shows readiness to support price stability, Fed policymakers highlight virus-led challenges to inflation.
• US bond, equities markets will be off due to Martin Luther King’s Birthday, risk catalyst will be important for fresh impulse.

EUR/USD seesaws around intraday high near 1.1420 amid a lackluster session during early Monday morning in Europe.

The major currency dropped the most in two weeks the previous day amid broad US dollar gains but a banking holiday in the US and mixed concerns seem to challenge the pair sellers afterward. Also testing the EUR/USD traders is a lack of major data/events.

US Dollar Index (DXY) fails to extend the previous day’s U-turn from the lowest levels since November 10, down 0.02% intraday to refresh daily lows at 95.14 by the press time. The greenback gauge cheered hints of faster rate-hikes, mainly due to virus-led negative impacts on inflation, on Friday.

Among the key supporters of Fed rate hikes were Federal Reserve Bank of San Francisco President Mary Daly and New York Fed President John Williams. It’s worth observing that US Retail Sales for December printed -1.9% MoM figure versus 0.0% expected and +0.2% prior. Further, the Michigan Consumer Sentiment Index for January also eased to 68.8 versus 70 forecasts and 70.6 previous readouts. The details also suggest that the highest inflation in 40 years weighs on consumer behavior.

On the other hand, ECB President Christine Lagarde reiterated the regional central bank’s readiness to keep the prices stable. However, comments like, “monetary accommodation is still needed for inflation to settle at the 2.0% target over the medium-term,” seemed to have again kept the Fed on the upper hand during the ECB v/s Fed battle.

Against this backdrop, the stock futures in the US and Europe remain pressured while Asia-Pacific equities trade mixed.

That said, German Bund yields will be eyed for clearer direction amid a lack of major data/events. Given the firmer bund yields, the EUR/USD prices may remain pressured but the risk catalyst is also important to watch for fresh impulse. Recently, the virus numbers have eased from their record tops in the US, the UK and Europe, which in turn tame the Omicron fears and put a floor under the pair prices. Though no clarity has been awarded in that direction and hence the pair’s near-term outlook remains sluggish ahead of the Fed’s meeting in the next week.

Technical analysis

EUR/USD took a U-turn after rising to the highest levels since November 11 the previous day. The downside move could be linked to Thursday’s Doji candlestick formation below the 100-day EMA, as well as the RSI retreat.

As a result, the EUR/USD pair’s latest weakness is likely to extend towards a convergence of the 50-day EMA and the resistance-turned-support line from September 03, around 1.1380. Also increasing the strength of the 1.1380 support are the multiple tops marked since November 16.

Alternatively, the 100-day EMA level of 1.1483 and the 1.1500 threshold guard the EUR/USD pair’s short-term rebound.