- Sustained USD buying dragged EUR/USD back closer to YTD lows on Wednesday.
- Investors now look forward to the US inflation data for a fresh directional impetus.
The EUR/USD pair remained depressed through the first half of the European session on Wednesday and was last seen hovering just above YTD lows touched in March. The shared currency was weighed down by the previous day's data, which showed a surprisingly sharp fall in Germany and Eurozone economic sentiment. Apart from this, sustained US dollar buying was seen as another factor that acted as a headwind for the major. The USD prolonged its post-NFP strong move up and shot to the highest level since early April amid expectations for an early tapering of the Fed's massive monetary stimulus.
Friday's blockbuster NFP report marked another step towards the Fed's goal of substantial further progress in the labour market recovery. Investors now seem to have started pricing in the possibility that the Fed will wind back its pandemic-era policy support sooner rather than later. The Fed officials have also started to guide the market towards an early tapering of the massive pandemic-era stimulus and higher interest rates as soon as 2022. This, in turn, pushed the yield on the benchmark 10-year US government bond to the highest level since July 14 and further underpinned the greenback.
Apart from this, worries about the economic fallout from the fast-spreading Delta variant of the coronavirus was seen as another factor that benefitted the safe-haven USD. Despite the bearish fundamental backdrop, the pair, so far, has managed to defend the 1.1700 mark. Investors now seem to have moved on the sidelines and wait for the release of the latest US consumer inflation figures for a fresh impetus. The data will influence market expectations above the next policy move by the Fed, which will drive the USD in the near term and help determine the next leg of a directional move for the major.
Short-term technical outlook
From a technical perspective, the bias remains tilted in favour of bearish traders in the wake of the recent break below a short-term ascending trend-line extending from September 2020 swing lows. That said, the lack of strong follow-through selling warrants some caution, making it prudent to wait for sustained weakness below the 1.1700 mark before positioning for any further depreciating move. The pair might then accelerate the fall towards intermediate support near the 1.1665-60 region en-route November 2020 swing lows, around the 1.1600 round figure.
On the flip side, attempted recovery moves might now confront resistance near the mentioned ascending trend-line support breakpoint, around mid-1.1700s. Any subsequent positive move might be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the 1.1800 mark. This is followed by resistance near the 1.1830-35 region, which if cleared decisively might trigger a short-covering move. The next relevant hurdle is pegged near the 1.1880 supply zone ahead of the 1.1900 mark. A sustained strength beyond might negate the bearish bias and allow the pair to aim back to reclaim the key 1.2000 psychological mark. The latter coincides with the very important 200-day SMA and should act as a key pivotal point for short-term traders.
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