EUR/USD struggles near one-month low, seems vulnerable below 50-day SMA

• EUR/USD remains depresed near a one-month low amid a modest USD strength.
• Hawkish Fed expectations and looming recession risks underpin the greenback.
• Bets for additional jumbo rate hikes by the ECB help limit losses for the major.

The EUR/USD pair consolidates its recent downfall to over a one-month low and oscillates in a narrow range through the first half of the European session on Monday. The pair is currently placed around the 1.0675-1.0680 region and seems vulnerable to prolonging its sharp retracement from the highest level since April 2022 touched earlier this month.

The US Dollar stands tall near a five-week high amid the prospects for further policy tightening by the Fed and turns out to be a key factor acting as a headwind for the EUR/USD pair. In fact, a slew of FOMC members, including Fed Chair Jerome Powell, stressed the need for additional interest rate hikes this week to fully gain control of inflation. The bets were reaffirmed by the Labor Department's annual revisions of CPI, which showed that consumer prices rose in December instead of falling as previously estimated.

Furthermore, the University of Michigan survey's one-year inflation expectations climbed to 4.2% this month from the 3.9% previous. This raises the risk of higher inflation print for January and dashes hopes for an imminent pause in the Fed's rate-hiking cycle. This, along with the prevalent cautious market mood and looming recession risks, continues to lend support to the safe-haven buck. Apart from this, signs of easing inflationary pressure in the Eurozone undermine the Euro and keep a lid on the EUR/USD pair.

That said, bets for additional jumbo rate hikes from the European Central Bank (ECB) in the coming month lend some support to the shared currency. Traders also seem reluctant to place aggressive bets ahead of the crucial US CPI report on Tuesday, which further contributes to limiting the downside for the EUR/USD pair, at least for now. Nevertheless, Friday's breakdown below the 50-day SMA could be seen as a fresh trigger for bearish traders and supports prospects for an extension of the near-term depreciating move.

Technical levels to watch