- EUR/USD climbed to four-week tops amid the prevalent selling bias surrounding the USD.
- The USD remained depressed amid reduced bets for an earlier than anticipated Fed lift-off.
- Investors now look forward to German CPI, US Retail Sales data for a fresh trading impetus.
The EUR/USD pair prolonged its recent bounce from multi-month lows and advanced for the third consecutive session on Wednesday. The momentum was exclusively sponsored by sustained selling bias around the US dollar, in line with the recent fall in the US Treasury bond yields. The Fed has maintained its dovish stance and repeatedly assured that it will keep interest rates low. This, along with Tuesday's rather unimpressive US CPI report, dragged the yield on the benchmark 10-year US government bond further away from a 14-month peak of 1.776% hit late March. The data reinforced the Fed's view that higher inflation will be transitory and dampened prospects for an earlier than anticipated Fed rate hike.
Meanwhile, Fed Chair Jerome Powell reiterated on Wednesday that the US economy is at an inflexion point and going into a period of faster growth, more job creation. Powell further added that the US central bank will reduce its monthly bond purchased before it commits to an interest rate increase (unlikely before the end of 2022). The USD bulls failed to gain any respite after Vice Chair Richard Clarida said that if inflation expectations drift up persistently, the policy would need to be adjusted. Apart from the reduced Fed rate hike bets, the underlying bullish sentiment in the financial markets was seen as another factor that undermined the greenback's relative safe-haven status against its European counterpart.
On the economic data front, the Eurozone Industrial Production contracted 1% MoM and 1.6% YoY. The data suggested that the recovery in the manufacturing sector is far from gaining traction, albeit did little to influence the shared currency. Nevertheless, the pair settled near the top end of its daily trading range and touched four-month tops during the Asian session on Thursday. Bulls, however, took a breather just ahead of the key 1.2000 psychological mark as the focus now shifts to key macro releases. Germany will publish the final version of March inflation figures. Meanwhile, the US economic docket highlights the releases of monthly Retail Sales data, Philly Fed Manufacturing Index and the usual Initial Weekly Jobless Claims.
Short-term technical outlook
From a technical perspective, the recent positive move stalled near a previous double-top resistance, around the 1.1985-90 region. This should now act as a key pivotal point for short-term traders. Any subsequent move beyond the 1.200 mark is likely to confront some resistance near the 1.2025-30 region. The latter coincides with the 50% Fibonacci level of the 1.2350-1.1704 downfall, above which the pair seems all set to aim back toward reclaiming the 1.2100 mark – coinciding with the 61.8% Fibo. level.
On the flip side, the 38.2% Fibo. level, around mid-1.1900s now seems to protect the immediate downside. Some follow-through selling could drag the pair back towards the very important 200-day SMA near the 1.1900 mark. Failure to defend the mentioned support levels will suggest that the recent move up has run out of steam and set the stage for further weakness. The pair might then accelerate the fall towards the 23.6% Fibo. level, around the 1.1850-45 region before eventually sliding back to test sub-1.1800 levels.
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