- EUR/USD drifts lower for the second straight day amid resurgent USD demand.
- Hawkish Fed expectations and the cautious mood boost the safe-haven buck.
- Reduced bets for more aggressive ECB rate cuts could limit any further losses.
The EUR/USD pair is facing considerable selling pressure on Wednesday, hitting a one-week low in the first half of the European session. Despite some resilience below the 1.0800 mark and a slight rebound in the last hour, a substantial recovery remains elusive, given the strong demand for the US Dollar (USD). Investors are now inclined to believe that the Federal Reserve (Fed) will hold off on interest rate cuts until the June policy meeting. This perception, coupled with a shift in global risk sentiment, is favoring the safe-haven Greenback.
However, a potential decline in US Treasury bond yields might temper the enthusiasm of USD bulls, preventing them from making aggressive moves. This, coupled with diminished expectations for a swift reduction in borrowing costs by the European Central Bank (ECB), could provide some support to the common currency and constrain the downside for the EUR/USD pair. Investors may also opt for a cautious approach ahead of crucial inflation data from both the Eurozone and the United States (US). Thursday is anticipated to bring forth flash CPI estimates from Germany, France, and Spain, preceding the release of the US Personal Consumption Expenditures (PCE) Price Index.
Following this, Friday will witness the release of Eurozone inflation data, exerting influence on the shared currency and playing a pivotal role in steering the Euro. This event is expected to provide momentum to the EUR/USD pair in the lead-up to the ECB meeting scheduled for March 7. Meanwhile, traders on Wednesday will be monitoring signals from the Preliminary US Q4 GDP figures. Additionally, insights from speeches by influential FOMC members are anticipated to create short-term opportunities within the EUR/USD pair.
Daily digest market movers: Bears seize intraday control amid strong pickup in the USD demand
Amid a cautious market sentiment, the US Dollar strengthens for the second consecutive day, propelled by the Federal Reserve’s hawkish stance on interest rates. Fed Governor Michelle Bowman’s remarks on Tuesday emphasized a measured approach to rate cuts, signaling a preference for waiting until June. This has tempered investor appetite for riskier assets ahead of Thursday’s US Personal Consumption Expenditure Price Index.
Despite concerns about a potential US government shutdown and lackluster data on Durable Goods Orders released on Tuesday, retreating US Treasury bond yields may limit the USD’s upward momentum. President Joe Biden’s urgency to address the legislative deadlock and the sharp 6.1% decline in durable goods orders in January, the steepest in almost four years, have not substantially influenced the USD’s upward trajectory.
Adding to economic concerns, the Conference Board’s Consumer Sentiment Index fell to 106.7 in February, reflecting anxiety over a potential recession despite declining inflation expectations. Meanwhile, the Richmond Fed’s Manufacturing Index, although marking the fourth consecutive negative reading, showed improvement, reaching -5 in February compared to -15 in the previous month.
Traders are adjusting their expectations for a swift reduction in borrowing costs by the European Central Bank, now anticipating less than 100 basis points of rate cuts this year, down from approximately 150 basis points at the beginning of February.
The upcoming focus is on country-specific consumer inflation data from Germany, France, and Spain, scheduled for release on Thursday. Subsequently, the Eurozone-wide flash CPI print on Friday will be closely monitored for further market insights.
Technical analysis: Break below the 1.0785 horizontal support could pave the way for deeper losses
From a technical standpoint, the recent inability to breach the 1.0900 mark and the subsequent dip below the 200-day Simple Moving Average (SMA) may be viewed as a new signal for bearish traders. However, it’s worth noting that oscillators on the daily chart have yet to confirm this negative outlook, urging some caution before taking a stance on further losses. In this context, any additional decline is likely to encounter robust support around the 1.0785 horizontal zone. This level is pivotal, and a decisive break below it could expose the EUR/USD pair to potential acceleration in the descent, revisiting levels below 1.0700 or the three-month low recorded on February 14.
On the contrary, the 1.0850 region appears to function as an immediate resistance. A breach above this level could set the stage for the EUR/USD pair to make a renewed attempt at conquering the 1.0900 round figure. Continued buying momentum could pave the way for a further near-term uptrend, aiming to reclaim the 1.1000 psychological threshold, a level not seen since January 11.
