- Renewed USD buying interest prompted some fresh selling on Tuesday.
- Trump's not so optimistic trade-related comments did little to support.
- The focus now shifts to the latest US CPI figures and Powell's testimony.
Following the previous session's modest uptick, the selling pressure around the shared currency returned on Tuesday and dragged the EUR/USD pair to fresh four-week lows near the key 1.10 psychological mark. Dovish comments by the ECB Executive Board member, Benoît Cœuré, saying that the QE program will remain in place for as long as needed, triggered the initial leg of the downtick. Meanwhile, traders seemed unaffected by a notable improvement in the German economic sentiment, rather took cues from some renewed US Dollar buying interest.
The greenback managed to regain some positive traction despite a mixed performance in the US bond market and was seen as one of the key factors exerting some fresh downward pressure on the major. However, investors remained cautious amid fading optimism over the possibility of a US-China trade deal, especially after the US President Donald Trump indicated over the weekend that he would only sign if it was the “right deal” for America. Trump on Tuesday further added that the US will increase tariffs on China in case the first step of a broader agreement isn’t reached.
The half-hearted overnight USD uptick quickly ran out of the steam during the Asian session on Wednesday and helped the pair to recover a bit, though the upside is likely to remain limited ahead of the latest US consumer inflation figures and the Fed Chair Jerome Powell's testimony before the Congress. Heading into the key data/event risk, the final German inflation figures might influence the common currency and contribute towards producing some short-term trading opportunities.
Short-term technical outlook
From a technical perspective, the pair has just managed to hold its neck above the 1.10 handle – support marked by 61.8% Fibonacci level of the 1.0879-1.1180 recent positive move. A convincing break below the mentioned support now seems to accelerate the fall further towards the 1.0955-50 region before the pair eventually drops to challenge the 1.0900 round-figure mark.
On the flip side, any attempted recovery might now confront some fresh supply near the 1.1030-40 confluence region, comprising of 50% Fibo. level and 50-day SMA, above which a bout of short-covering has the potential to lift the pair towards the double-top neckline support breakpoint and the 1.1100 handle. Momentum beyond the mentioned hurdles should pave the way for a further near-term recovery back towards the 1.1165-70 heavy supply zone.
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