EUR/USD Forecast: Sellers could target 1.0660 next

• EUR/USD declined sharply on broad US Dollar strength on Tuesday.
• The pair could extend its decline toward 1.0660 in case 1.0700 support fails.
• Markets favor a no change in the Fed policy rate in May after inflation data.

EUR/USD came under heavy bearish pressure in the American session on Tuesday and touched its lowest level since mid-November at 1.0700. The pair stays in a consolidation phase slightly above this level early Wednesday but the technical outlook shows that the bearish bias remains intact.

The US Dollar (USD) outperformed its rivals in the second half of the day on Tuesday and forced EUR/USD to decline sharply.

Inflation in the US, as measured by the change in the Consumer Price Index, edged lower to 3.1% in January from 3.4% in December. This reading came in above the market expectation of 2.9%. Additionally, the Core CPI, which excludes volatile food and energy prices, rose 3.9% in the same period, matching December’s increase and surpassing analysts’ estimate of 3.7%.

The probability of the Federal Reserve (Fed) leaving the policy rate unchanged at the next two policy meetings climbed to 60% from 40% after inflation data, according to the CME FedWatch Tool.

There won’t be any high-tier data releases featured in the US economic docket. Chicago Fed President Austan Goolsbee and Atlanta Fed President Raphael Bostic will be delivering speeches later in the day. In case Fed officials adopted a concerned tone regarding the latest inflation data, the USD could preserve its strength. On the other hand, the currency could correct lower if policymakers reiterate the need to see more data before deciding on the timing of the policy pivot.

EUR/USD Technical Analysis

EUR/USD trades in the lower half of the descending regression channel and the Relative Strength Index (RSI) indicator stays below 40, reflecting the bearish bias. On the downside, 1.0700 (psychological level, static level) aligns as immediate support before 1.0660 (static level from November, lower limit of the descending channel) and 1.0600 (psychological level).

On the upside, first resistance is located at 1.0735 (mid-point of the descending channel) ahead of 1.0770 (50-period Simple Moving Average (SMA)) and 1.0800 (100-period SMA, psychological level, upper limit of the descending channel).