The EUR/USD pair is trading virtually unchanged on Monday after being rejected from a fresh nine-month high above 1.0900 amid profit-taking flows.
At the time of writing, the EUR/USD pair is trading at the 1.0865 area, back at square one, having retreated from its highest intraday level since April at 1.0926.
Monetary policy divergences that helped the dollar throughout 2022 are now weighing on the American currency as investors continue to price in a less aggressive Fed. According to the WIRP tool, markets foresee three consecutive 25-bps hikes in 2023.
On the other hand, hawkish comments from European Central Bank (ECB) officials keep the shared currency underpinned. ECB's Olli Rehn stated that the bank should raise interest rates significantly over the next months. At the meantime, his colleague Klass Knot said that the bank will raise rates by 0.5% in February and March, and that market should expect more steps to follow in May and June. Markets are pricing a 50 bps hike by the ECB at the February meeting, followed by another 50 bps increase in March. Then, a 25 bps hike in May is being priced in followed by another one in the third quarter.
For the rest of the week and ahead of Fed's verdict on February 1, PCE deflator and PMIs data from the U.S. will be closely looked upon by the markets.
From a technical perspective, the EUR/USD short-term bias remains bullish as the pair continues to trade above its main moving averages while indicators stand in positive territory. However, the RSI hovers near overbought conditions, which could give way to a phase of consolidation before another leg higher.
Short-term barriers on the upside are seen at Monday's high at 1.0926, followed by the 1.0935 area and the psychological 1.1000 level. On the other hand, the 1.0800 area, the 20-day SMA, located close to 1.0723, and the 1.0700 zone line up as short-term supports.
