- US Dollar soars on Tuesday on the back of Fed Powell’s testimony.
- Markets realign expectations ahead of key US employment data.
- EUR/USD remains under pressure, suffers the worst decline in weeks.
The EUR/USD fell sharply on Tuesday amid a rally of the US Dollar. Federal Reserve Chair Jerome Powell took centre stage and delivered a hawkish message, sending the greenback sharply higher.
Despite EUR/USD’s slide, the Euro held relatively well against other rivals, as European Central Bank (ECB) officials continue to point to significant rate hikes ahead. Data released on Tuesday showed EZ Consumer Inflation Expectations for the next 12 months declined. In Germany, Factory Orders rose unexpectedly by 1% in January against expectations of a 1% decline.
At the semi-annual testimony before the US Senate, Fed Chair Powell spoke about the possibility of larger interest rate hikes amid the latest round of upbeat US economic data. He explained that inflationary pressures are higher than anticipated. His comments cemented expectations of “higher for longer” interest rates. The odds of a 50 basis points rate hike at the next meeting increased. US yields rose sharply, with the 2-year rate nearing 5%.
On Wednesday, Germany will report Industrial Production and Retail Sales data and the Eurozone a new estimate of Q4 GDP and Employment Change. In the US, Automatic Data Processing (ADP) will release its employment report and Powell will testify again. On Friday, the NFP report is due. The events ahead of the macroeconomic calendar warrant more volatility ahead for EUR/USD, including the possibility of a sharp reversal.
EUR/USD short-term technical outlook
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The daily chart shows the EUR/USD had the worst day since early February on Tuesday, losing not only more than a hundred pips but breaking relevant short-term support levels and retreating below the 20-day Simple Moving Average (SMA). Technical indicators have turned south on the daily chart, and a daily close below 1.0500 would point to a bearish continuation.
The 4-hour chart shows risks still tilted to the downside for EUR/USD, with the RSI approaching 70. After the sharp decline, some consolidation could be expected, however, if the pair holds below 1.0550, February lows around 1.0530 would be exposed. A break of that area should lead to a test of the critical 1.0500 mark. On the other hand, a correction could extend to 1.0590. Only a recovery above 1.0630 would significantly alleviate the bearish pressure.
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