Euro remains depressed, near one-month lows with US data in focus

• The Euro languishes at one-month lows amid broad-based Dollar strength.
• Dwindling hopes of Fed rate cuts and geopolitical tensions are underpinning support for the US Dollar.
• Later today the US Retail Sales and a slew of Fed speakers might boost EUR/USD volatility.

The Euro (EUR) is practically flat near one-month lows on Wednesday, consolidating losses after a sharp reversal on Tuesday. The increasing geopolitical tensions in the Middle East and central banker’s rhetoric have pushed back hopes of rate cuts in early 2024, sending investors rushing into safe assets like the US Dollar (USD), which is weighing on the Euro.

On Tuesday, the Federal Reserve (Fed) Governor, Christopher Waller, warned that the bank is unlikely to trim rates while consumer inflation remains at a “striking distance” of the 2% target of price stability. Waller echoed last week’s comments by other Fed policymakers, demonstrating that the market got ahead of itself with the global central banks’ easing expectations.

In this context, and with the increasing tensions in the Red Sea underpinning the safe-haven US Dollar, the focus is now on the US Calendar. Later today, December’s US Retail sales and an array of Fed speakers are likely to boost USD volatility.

Daily digest market movers: Euro succumbs on US Dollar strength as risk appetite falters 

• The Euro is hovering near one-month lows against a stronger USD with all eyes on US consumption figures.
   
• Fed Governor, Christopher Waller struck a hawkish tone on Tuesday and cast further doubt about the possibility of a Fed rate cut in March.
   
• Futures markets are pricing a 63% chance that the Fed will start easing in March, down from 75% at the start of the week.
   
• Later today US Retail sales are expected to show a 0.4% increase in December, following a 0.3% rise in the previous months.
   
• Shortly after the US data is released, Fed board members Michael Barr and Michelle Bowman are likely to give further insight into the bank’s monetary policy outlook.
   
• In the Euro Area, Consumer inflation is expected to confirm the preliminary data which showed an increase in price pressures in December.
   
• Somewhat later, European Central Bank President, Christine Lagarde, and Bundesbank Governor Joachim Nagel will speak. Their comments about the bank’s policy plans will be observed with interest.
   
• The uncertainty in the Red Sea persists, forcing shipping firms to find alternative routes for their cargo. This increases shipping costs and will translate into higher inflationary pressures.
   
• Data from China seen earlier today has added to evidence of the frail growth in the world’s second-largest economy. The third quarter GDP grew at  5.2% year on year, below the 5.3% expected, with retail sales also disappointing.

Technical Analysis: EUR/USD is under increasing bearish pressure below 1.0880 support

The EUR/USD has confirmed its near-term bearish trend with price action piercing the bottom of the last two week’s trading range, and the 38.2% retracement of the October - December rally, at 1.0880. 

In so doing, the pair resumes its downtrend from late December highs, activating a bearish Head and Shoulders pattern. The next support levels are 1.0780 and 1.0725. The H&S measured target is 78.6% Fibonacci retracement of the aforementioned rally, at 1.0600.

On the upside, the pair should regain 1.0880 and the reverse trendline support, now at 1.0925 in order to shift its focus back to the 1.1000 area.
 

EUR/USD 4 Hour Chart