EUR/USD is attempting a recovery to test 1.0700 in the early European morning. The pair is looking to reclaim the 1.0700 level as the risk aversion theme has lost traction, limiting the renewed upside in the US Dollar – thin trading to continue amid a US holiday.
The Relative Strength Index (RSI) indicator on the daily chart climbed above 50 early Monday. EUR/USD was last seen trading slightly above the upper limit of the descending channel coming from early February.
Although these technical developments suggest that the pair might be going into a recovery phase, buyers are likely to wait until 1.0700 (Fibonacci’s 61.8% retracement level of the latest uptrend, 50-period SMA) is confirmed as support. Once that happens, additional gains toward 1.0760 (Fibonacci 50% retracement) and 1.0780 (100-period SMA, 200-period SMA) could be witnessed.
If EUR/USD returns to the descending channel after failing to stabilize above 1.0700, sellers could take action and drag the pair lower toward 1.0650 (mid-point of the descending channel) and 1.0620 (static level).
EUR/USD has gone into a consolidation phase at around 1.0700 after having closed the previous week virtually unchanged. Stock and bond markets in the US will remain closed in observance of the Presidents’ Day holiday on Monday, and the pair is unlikely to make a decisive move in either direction.
In the absence of high-tier data releases on Friday, the US Dollar struggled to preserve its strength amid profit-taking ahead of the weekend, and the US Dollar Index snapped a three-day winning streak. Additionally, Richmond Fed President Thomas Barkin said late Friday that they were observing some progress on inflation with demand normalizing, and this comment put additional weight on the US Dollar.
Meanwhile, European Central Bank (ECB) policymaker Francois Villeroy de Galhau reiterated that Eurozone inflation was “too fast and possibly persistent” while arguing that the ECB needs to be more predictable with its communications and provide short-term perspectives on policy.
Later in the day, the European Commission will release the preliminary Consumer Confidence Index for February, which is expected to improve modestly to -18.3 from -20.9 in January. Thin trading conditions, however, will likely keep the pair’s action confined to a narrow channel.
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