EUR/USD Forecast: Corrective advance to continue in the near term

EUR/USD Current price: 1.0746

• European Central Bank President Christine Lagarde testified before the European Parliament.
• The United States has a packed macroeconomic calendar on Thursday.
• EUR/USD extends its recovery for a second consecutive day, could approach 1.0800.

The EUR/USD pair keeps advancing after briefly piercing the 1.0700 earlier in the week, currently trading at around the 1.0740 figure. Financial markets are in a better mood on Thursday, finally digesting United States (US) hotter-than-expected January inflation and the subsequent rate cut delay. Stock markets and bonds recovered, with gains led by the tech sector. That means yields ease from the peaks set this week, adding modest pressure on the US Dollar.

Meanwhile, European Central Bank (ECB) President Christine Lagarde testified before the Committee on Economic and Monetary Affairs of the European Parliament. Among other things, Lagarde noted the central bank still needs more information before it can affirm inflation is heading back towards the desired 2%. “The latest data confirms the ongoing disinflation process and is expected to bring us gradually further down over 2024,” Lagarde said, although adding the Governing Council needs additional data to determine whether the decline is sustainable in time. Finally, she repeated what most policymakers have signalled in their latest attempt to cool down rate-cut speculation: wage growth remains strong and could affect inflation dynamics.

Other than that, the Eurozone published the December Trade Balance, which posted a seasonally adjusted surplus of €13 billion, below the  €15.1 billion surplus from November.

Finally, the European Commission released the latest Economic Growth Forecasts, downgrading growth perspectives to 0.9% for the EU and 0.8% for the euro area. On a positive note, inflation is predicted to ease further: The Harmonised Index of Consumer Prices (HICP) inflation in the EU is set to decline faster from a steep 6.3% in 2023 to 3.0% in 2024, further dropping to 2.5% in 2025.

The American session will bring some interesting US figures. The country will publish January Retail Sales, the February NY Empire State Manufacturing Index, weekly unemployment figures, and Industrial Production and Capacity Utilization for January.

EUR/USD short-term technical outlook

The EUR/USD pair is up for a second consecutive day, although a firmer advance is still out of the technical picture. In the daily chart, the pair develops below all its moving averages, with the 20 Simple Moving Average (SMA) heading firmly lower, well above the current price. Furthermore, it extends its slide below a flat 200 SMA, which usually reflects sellers’ dominance. Finally, technical indicators remain within negative levels, losing their former upward strength.

In the near term, however, EUR/USD seems poised to extend its corrective advance. The pair surpasses a bearish 20 SMA in the 4-hour chart while it stands far below the longer ones. Technical indicators, in the meantime, maintain their upward slopes, currently developing within neutral levels.

Support levels: 1.0695 1.0650 1.0610

Resistance levels: 1.0750 1.0790 1.0840