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- EUR/USD ends the day in the red for the third straight day on Tuesday amid modest USD strength.
- Softer German consumer inflation figures undermine the Euro and contribute to the downtick.
- Bets for smaller Fed rate hikes cap the USD and help the pair to regain traction on Wednesday.
- Traders look to flash Eurozone CPI and Fed Chair Powell’s speech for some meaningful impetus.
The EUR/USD pair continued with its struggle to find acceptance above a technically significant 200-day SMA and finally settled in the red for the third straight day on Tuesday. The US Dollar attracted some dip-buying and climbed to a multi-day high, which, in turn, was seen as a key factor that acted as a headwind for the major. The US Treasury bond yields gained some positive traction in the wake of the overnight hawkish remarks by Federal Reserve policymakers. Apart from this, worries about the worsening COVID-19 situation in China drove some haven flows towards the greenback.
The shared currency was further undermined by softer German consumer inflation figures, showing that price pressures eased a bit in Europe’s largest economy during November. This, however, did little to cool expectations for a series of interest rate hikes ahead by the European Central Bank (ECB). ECB President Christine Lagarde said on Monday that the region’s inflation has not peaked, and it risks turning out even higher than currently expected. Furthermore, signs of stability in the financial markets capped gains for the buck and offered support to the EUR/USD pair.
Investors turned optimistic amid speculation that China will scale back its strict anti-COVID policies to prevent more protests. This, along with growing acceptance that the US central bank will slow the pace of its policy tightening, kept a lid on any meaningful upside for the USD. The markets have been pricing a greater chance of a relatively smaller 50 bps Fed rate hike in December. The bets were reaffirmed by the dovish-sounding FOMC meeting minutes released last week. Hence, the market focus will remain glued to Fed Chair Jerome Powell’s scheduled speech on Wednesday.
Investors will seek more clarity on the central bank’s policy stance and future rate hikes, which will play a key role in influencing the near-term USD price dynamics. Traders will further take cues from the release of the flash Eurozone CPI print. Apart from this, the US macro data – the ADP report on private-sector employment, Prelim Q3 GDP report and JOLTS Job Openings – should provide some impetus to the EUR/USD pair. In the meantime, the emergence of fresh USD selling assists the EUR/USD pair regain some positive traction during the Asian session.
Technical Outlook
From a technical perspective, this week’s pullback from the vicinity of the 1.0500 psychological mark constitutes a bearish double-top pattern. In addition, repeated failures to find acceptance above the 200 DMA could be seen as the first signs of bullish exhaustion. That said, the lack of any follow-through selling warrants some caution before positioning for any meaningful downfall.
Any subsequent move up, meanwhile, is likely to confront some resistance near the 1.0400 round-figure mark. A sustained strength beyond has the potential to lift the EUR/USD pair to the 1.0480-1.0500 supply zone, which, if cleared will mark a bullish breakout and set the stage for additional gains. Spot prices might then accelerate the momentum towards the 1.0570-1.0575 region and aim to reclaim the 1.0600 mark for the first time since late June.
On the flip side, the 1.0300 round figure will likely protect the immediate downside. Any further decline could attract some buyers and remain limited near last week’s low, around the 1.0225-1.0220 zone. The latter should be a strong base for the EUR/USD pair. Some follow-through selling below the 1.0200 mark will expose the 100-day SMA support, currently around the 1.0140 area.
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