EUR/USD Outlook: Acceptance above 1.0650 confluence favours bulls, Powell’s testimony in focus

The EUR/USD pair holds steady near a two-week high, just below the 1.0700 mark through the Asian session on Tuesday and is supported by a combination of factors. The shared currency is underpinned by more hawkish comments by several European Central Bank (ECB) members, backing the case for additional jumbo rate hikes in the coming months. In fact, ECB President Christine Lagarde reiterated on Monday that the central bank is set to raise borrowing costs by another 50 bps at its upcoming meeting on March 16. Separately, Austrian Central Bank Governor Robert Holzmann said that the ECB should raise rates by 50 bps at each of its next four meetings in March, May, June and July. This, in turn, pushes the yield on the rate-sensitive two-year German bond to its highest level since October 2008 and continues to benefit the common currency. Apart from this, a generally positive tone around the equity markets is seen weighing on the safe-haven US Dollar and lending additional support to the major.

The USD downtick, however, seems limited amid elevated US Treasury bond yields, bolstered by expectations for further policy tightening by the Federal Reserve (Fed). The incoming US macro data indicated that inflation isn't coming down quite as fast as hoped and pointed to an economy that remains resilient despite rising borrowing costs. This should allow the US central bank to stick to its hawkish stance and continue raising interest rates for longer. Furthermore, a slew of FOMC policymakers recently backed the case for higher rate hikes and opened the door for a 50 bps lift-off at the March policy meeting.  Hence, the market focus will remain glued to Fed Chair Jerome Powell's semi-annual congressional testimony on Tuesday and Wednesday. Investors will look for clues about the Fed's future rate-hike path, which will play a key role in influencing the near-term USD price dynamics. In the meantime, looming recession risks should act as a tailwind for the buck and cap the upside for the EUR/USD pair.

Investors this week will also confront the release of the closely-watched US monthly employment details, popularly known as NFP on Friday. This should further contribute to providing some meaningful impetus to the EUR/USD pair and help determine the next leg of a directional move. Hence, it will be prudent to wait for strong follow-through buying before confirming that the pair has formed a bottom near the 1.0535-1.0530 region and that the recent pullback from a multi-month peak touched in February has run its course.

Technical Outlook

From a technical perspective, the overnight sustained strength and acceptance above the 1.0645-1.0650 confluence hurdle favour bullish traders. Moreover, oscillators on the daily chart have just started moving in the positive territory and support prospects for additional gains. Any further move up, however, might confront some resistance near the 38.2% Fibo. level, around the 1.0725 zone. The next relevant barrier is pegged near the 1.0760 horizontal zone ahead of the 50% Fibo. level, around the 1.0785 region and the 1.0800 round-figure mark. Some follow-through buying will negate any near-term negative bias and lift the EUR/USD pair towards the 1.0840 area, or the 61.8% Fibo. level. The upward trajectory could get extended towards the 1.0900 mark en route to the 1.0920-1.0930 supply zone.

On the flip side, the aforementioned confluence resistance breakpoint, comprising the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 23.6% Fibonacci retracement level of the 1.1033-1.0533 downside, should now act as immediate support. Any further decline might find some support near the 1.0600 round-figure mark ahead of the 1.0575-1.0570 horizontal zone. This is followed by the 1.0535-1.0530 region, or the lowest level since January. A convincing break below could make the EUR/USD pair vulnerable to weaken further below the 1.0500 psychological mark, which now coincides with the 100-day SMA. Some follow-through selling below the YTD low, around the 1.0480 region, will be seen as a fresh trigger for bearish traders and pave the way for a further near-term depreciating move.