- EUR/USD has stabilized near 1.0800 to start the new week.
- Market participants will continue to pay close attention to comments from central bank officials.
- Technical outlook suggests that the pair could extend rebound if 1.0800 stays intact.
Following Friday's rebound, EUR/USD has gone into a consolidation phase near 1.0800 early Monday. In case the pair confirms that level as support, it could stretch higher in the short term. Meanwhile, investors stay focused on debt limit talks in the US and comments from central bank officials.
“I think we covered a large chunk of the journey toward taming inflation and bringing it back to our target," European Central Bank (ECB) President Christine Lagarde said in an interview with Dutch media over the weekend. Lagarde, however, reiterated that they are not thinking about a pause in tightening cycle based on the current information they have.
On the other hand, FOMC Chairman Jerome Powell adopted a relatively dovish tone on Friday and argued that the risks of doing too much, in regard to policy tightening, versus doing too little were becoming "more balanced."
The probability of the Fed leaving its policy rate unchanged remains stable at around 90% following Powell's remarks, according to the CME Group FedWatch Tool. However, markets see a nearly 60% chance that the Fed's policy rate will remain unchanged by September, compared to only 30% a week ago. The market positioning suggests that investors don't think that the Fed will rush to start lowering the policy rate even if they go for a pause in the tightening cycle next month.
Meanwhile, the Euro Stoxx 50 Index trades modestly lower in the European morning and US stock index futures stay flat on the day. In case risk flows dominate the action on renewed optimism about an agreement to lift the debt ceiling, the US Dollar could find it difficult to hold its ground and vice versa. House Republican Speaker Kevin McCarthy and US President Joe Biden will meet again on Monday following Sunday's positive phone conversation.
EUR/USD Technical Analysis
Although EUR/USD climbed out of the descending regression channel, it is yet to confirm 1.0800 (psychological level, 20-period Simple Moving Average, Fibonacci 50% retracement of the latest uptrend) as support. In case the pair stabilizes above that level, it could extend its rebound toward 1.0860/70 (50-period SMA, Fibonacci 38.2% retracement) and 1.0900 (psychological level, static level).
Sellers could show interest with a four-hour close below 1.0800. In that scenario, EUR/USD could meet interim support at 1.0770 (static level) before 1.0740 (Fibonacci 61.8% retracement).
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