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EUR/USD analysis: Is there still room for a rally to 1.10?

By Piero Cingari

16:56, 10 January 2023

USD-EUR sign and alpine scenery in the background
USD-EUR sign. Is the market heading towards the EUR's direction?

The stars appear to be aligned nicely for a continuation of the euro's (EUR/USD) positive momentum. 

The occurrence of a sequence of good events that were underpriced by the market aided the euro's advance, which climbed 12% from its September 2022 lows and started the new year with gains.

A more hawkish-than-anticipated ECB, declining US inflation, the astonishing collapse of natural gas prices due to record warm temperatures, with the Dutch TTF now trading lower than at the start of the war in Ukraine, and the reopening of China have been the primary factors supporting the euro's extraordinary rally in recent months.

In terms of recent newsflow, economic data came in stronger than expected, the ECB continued to send hawkish signals, and fears of a severe recession are fading.

Do we have all of the elements in place for the euro to rise to or above 1.10 per dollar?

Positive macro factors bolstered the euro

Euro Area economic data: Sentiment index, Core inflation, Unemployment rate and Natural gas prices (Dutch TTF) – Chart:, Source: Tradingview

The euro has recently welcomed better-than-expected economic statistics, thus improving the macro picture for 2023.

The seasonally adjusted unemployment rate in the Euro Area was 6.5 percent in November 2022, which was the same as the all-time low from the month before.

In December 2022, the Euro Area economic sentiment indicator improved for a second month to 95.8, the highest level in four months and well beyond market estimates of 94.7, with modest gains across all sectors.

Inflation in the Eurozone has dropped to its lowest level in four months, according to latest statistics, as energy prices have decreased in response to a drop in natural gas prices. Natural gas prices have continued to plummet rapidly, with the Dutch TTF falling to levels last seen in September 2021.

However, excluding energy and food, core inflation increased to a record 5.2% from 5%, remaining significantly above the ECB's 2% objective. This keeps the ECB in a pretty hawkish position when it comes to the outlook for interest rates.

In light of stronger-than-expected economic activity data, lower natural gas prices, and China's recovery, Goldman Sachs has revised up its growth forecast for the eurozone, no longer predicting a recession and expecting 0.6% growth in 2023 as opposed to -0.1% earlier.

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Market pricing of ECB interest rates: Still space for upward revisions

As core inflation hit a record high of 5.2% in December, the gap between that and the ECB's target of 2% is at its widest point ever.


1.08 Price
-0.400% 1D Chg, %
Long position overnight fee -0.0079%
Short position overnight fee -0.0003%
Overnight fee time 21:00 (UTC)
Spread 0.00006


0.66 Price
-0.480% 1D Chg, %
Long position overnight fee -0.0074%
Short position overnight fee -0.0008%
Overnight fee time 21:00 (UTC)
Spread 0.00006


157.55 Price
+0.260% 1D Chg, %
Long position overnight fee 0.0108%
Short position overnight fee -0.0190%
Overnight fee time 21:00 (UTC)
Spread 0.010


0.66 Price
-0.480% 1D Chg, %
Long position overnight fee -0.0074%
Short position overnight fee -0.0008%
Overnight fee time 21:00 (UTC)
Spread 0.00006

Consequently, there is ample opportunity for the Eurozone's interest rates to rise in the coming months.

At the meeting in December 2022, ECB President Lagarde hinted that rate hikes of 50bps would be common for the next few meetings.

The market expects the ECB to raise rates by 42 basis points at its meeting in February, 45 basis points in March, and 32 basis points in June. In September 2023, the market-implied peak for the Eurozone policy rate is 3.49%.

If the Eurozone escapes a recession and core inflation remains sticky for longer, the ECB's rate cycle will become more aggressive, with the possibility of extending hikes beyond September 2023 or front-loading further hikes in H1 2023.

EUR/USD technical analysis: Key resistance at 1.094

EUR/USD technical analysis as of January 10, 2022 – Chart:, Source: Tradingview

We've lately seen several interesting technical developments on the EUR/USD daily chart.

The euro made a golden cross at the end of 2022 when the 50DMA and 200DMA intersected. When this happened in June 2020 and May 2017, the euro rallied in the weeks that followed. In the first week of the new year, EUR/USD firmly exceeded the 38.2% Fibonacci retracement between 2022 lows and 2021 highs.

I believe that in order for the euro to eventually break through the 1.10 barrier, a key resistance level at 1.0936 must be overcome, which corresponds to the 50% low-high retracement of the 2021-2022 range.

That was also a significant price ceiling in the first week of April 2022, and it's close to where the euro traded before to the start of the Fed's hiking cycle in March 2022.

If the EUR/USD reaches that level, it will be up 15% from its September lows. Such a strong performance may necessitate caution, since profit-seeking behaviour may emerge at that stage.

A lower-than-expected US CPI on Thursday might be the primary catalyst for EUR/USD to test 1.094, but we'll likely need more than that to clearly surpass the 1.10 mark.

Next week's ZEW economic sentiment index for January would already provide new information on the Eurozone's ability to avert a recession. If the print is stronger than predicted, it will likely contribute to the EUR's gains and propel the rally to 1.10.

On the downside, 1.06 (38.2% Fibonacci and ECB December meeting levels) provides substantial support if US CPI prints higher than expected and EU Zew disappoints.

Markets in this article

1.08120 USD
-0.00434 -0.400%
Natural Gas
Natural Gas
2.7040 USD
-0.14 -4.930%

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