- EUR/USD remains on the back foot around 20-month low.
- Yields improve on hawkish Fed, anxiety over Russia-Ukraine peace talks.
- US/EU data, Fed v/s ECB battles will also direct traders.
EUR/USD fades bounce off the lowest levels since May 2020 as the quote eases to 1.1100 during early Thursday morning in Europe.
The major currency pair flashed a Doji candlestick near multi-day low the previous day but risk-off mood, coupled with widening gap between the Fed and the ECB policymakers’ thinking, weighed on the quote afterward.
Hopes of peace talks between Russia and Ukraine, backed by expectations of a ceasefire, revived the market’s optimism the previous day. However, Russia’s rating downgrade by Moody’s and Fitch joins US President Joe Biden’s readiness to introduce further hardships for Moscow to challenge the market’s mood.
Elsewhere, a jump in the probabilities of a 0.50% rate hike in the March Fed meeting, per CME’s FedWatch Tool, also challenges the market’s optimism. The stated tool from the CME signals around 90% probabilities for a 0.50% increase in the benchmark rate in March versus nearly 2% odds favoring the same decision earlier. The latest jump in the market’s hopes of the hawkish Fed could be linked to Fed Chair Powell’s bi-annual hearing of Monetary Policy Report in front of the House Financial Services Committee.
Contrary to increasing probabilities for a 0.50% rate hike in March, money market bets over the ECB’s faster rate lifts have been easing of late, which in turn adds to the bearish catalysts for EUR/USD.
Amid these plays, S&P 500 Futures remain sluggish and so do US 10-year Treasury yields even as Wall Street ran the show of optimism.
Moving on, negative surprise by the Eurozone inflation data, despite being around record high, joins mixed comments over the ECB’s next moves to highlight today’s ECB Monetary Policy Accounts. Also important are US data comprising the ISM Services PMI, Factory Orders, Nonfarm Productivity, etc. Further, the second version of Fed Chair Powell’s testimony and Russia-Ukraine headlines will also be the key for the near-term direction.
Technical analysis
EUR/USD remains inside a short-term bullish chart pattern called falling wedge despite recently being around the support line close to 1.1060. The RSI’s bounces off the oversold territory joined receding bearish of the MACD signals to favor the latest rebound.
However, a 13-day-old descending trend line and the 61.8% Fibonacci Expansion (FE) of the pair’s moves between September 2021 and February 2022, respectively around 1.1010 and the 1.1000 threshold, will challenge the EUR/USD pair’s additional weakness.
Alternatively, recovery moves beyond the weekly resistance line, close to 1.1190 by the press time, will be challenged by the 50-SMA and the wedge’s upper line, near 1.1235 and 1.1270.