EUR/USD Forecast: Struggling to retain 1.0600 ahead of FOMC Minutes

EUR/USD Current Price: 1.0601

• The EUR benefited from S&P Global reports suggesting inflation in the Euro Zone is receding.
• A sharp decline in government bond yields weighed on the US Dollar. 
• EUR/USD trimmed half of its Tuesday gains, but additional advances are still unclear.

The EUR/USD pair recovered half of the ground lost on Tuesday, with the US Dollar falling as it advanced previously, without a clear catalyst. The EUR stands among the weakest USD rivals, as most have trimmed their previous losses. EUR/USD trades a handful of pips above the 1.0600 threshold after hitting an intraday high of 1.0635.

A sharp decline in government bond yields during Asian trading hours put pressure on the Greenback. The Australian Dollar soared amid news China may partially lift the coal imports ban from the country, while the Japanese Yen appreciated on news the Bank of Japan (BoJ) attempted to lower government bond yields, while Governor Haruhiko Kuroda said they would continue to ease monetary policy to achieve their inflation goal. The news affected US Treasury yields, which also declined. Ahead of the US opening, the 10-year  note offers 3.69%, down 10 bps on the day.

On the data front, S&P Global published the final estimates of its December PMIs. The German Services PMI was upwardly reported to 49, while that for the Euro Zone was confirmed at 49.8,  suggesting the EU has left the worst behind. The reports indicated that price pressures remained elevated but retreated further from their recent peaks. The encouraging news provided mild support to the EUR.

The United States macroeconomic calendar will bring the December ISM Manufacturing PMI, expected to have contracted further, from 49 to 48.5. In addition, during the American afternoon, the United States  Federal Open Market Committee (FOMC) will unveil the Minutes of its latest monetary policy meeting. In their December meeting, US policymakers upwardly revised their inflation forecast and hinted at more rate hikes coming up, against the market’s expectations of a potential end of the tightening cycle.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD pair shows that it is stuck around its 20 Simple Moving Average (SMA) while holding above directionless longer ones. At the same time, the Momentum indicator remains flat below its 100 level, while the Relative Strength Index (RSI) gains upward traction within neutral levels. Overall, the risk skews to the upside as long as the pair holds above the 23.6% Fibonacci retracement of the September/December rally at 1.0450.

In the near term, and according to the 4-hour chart, however, the pair has room to extend its slide. EUR/USD topped around a bearish 20 SMA, retreating from the indicator and trading also below the 100 SMA. Technical indicators, in the meantime, turned modestly lower within negative levels after correcting oversold conditions.

Support levels: 1.0560 1.0510 1.0450

Resistance levels: 1.0650 1.0695 1.0740

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