• Hawkish comments by ECB policymakers lifted EUR/USD to a fresh monthly peak on Monday.
  • The emergence of some USD buying on Tuesday kept a lid on any further gains for the major.
  • Recession fears, aggressive Fed rate hike bets helped revive demand for the safe-haven buck.

The EUR/USD pair witnessed an aggressive short-covering move on Monday and rallied to a fresh monthly peak in reaction to hawkish comments by the European Central Bank (ECB) policymakers. In fact, ECB President Christina Lagarde said in a blog post that the central bank was likely to lift the euro area deposit rate out of the negative territory by the end of September. She added that the ECB could raise interest rates further if it saw inflation stabilizing at 2%. Separately, ECB Governing Council member Francois Villeroy de Galhau noted that the deal is probably done because there is a growing consensus on a July rate hike.

Apart from this, broad-based US dollar weakness was seen as another factor that contributed to the pair's strong move up. Given that a 50 bps Fed rate hike move is already priced in, the risk-on impulse weighed heavily on the safe-haven buck. Hopes that loosening of COVID-19 lockdowns in China would boost the global economy lifted investors' confidence. This was evident from a generally positive tone around the equity markets, which, in turn, dragged the USD to its lowest level since April 26. That said, the worsening global economic outlook kept a lid on the optimistic move and extended some support to the greenback and capped the major.

Investors remain worried that a more aggressive move by major central banks to curb soaring inflation could pose challenges to global economic growth. Adding to this, the Russia-Ukraine war and the latest COVID-19 outbreak in China have been fueling recession fears. This, along with expectations that the Fed would need to take more drastic action to bring inflation under control, helped revive the USD demand during the Asian session on Tuesday. The EUR/USD pair struggled to capitalize on the overnight strong move up and met with a fresh supply in the vicinity of the 1.0700 mark. Traders now look forward to the release of the flash PMI prints from the Eurozone and the US.

Apart from this, a scheduled speech by Fed Chair Jerome Powell and ECB President Christina Lagarde should produce some meaningful trading opportunities around the EUR/USD pair. The focus, however, will remain on the release of the FOMC monetary policy meeting minutes, due on Wednesday. Market participants will look for clues about the possibility of a jumbo 75 bps rate hike by the Fed in June. This will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the major.

Technical outlook

From a technical perspective, the overnight broke through the 38.2% Fibonacci retracement level of the 1.1185-1.0350 downfall could be seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart have just started moving into positive territory and support prospects for additional gains. Hence, some follow-through strength, towards testing the 1.0770-1.0775 confluence resistance, now looks like a distinct possibility. The said barrier comprises the 50-day SMA and the 50% Fibo. level, which if cleared decisively should pave the way for an extension of the recent strong recovery move from the YTD low touched earlier this month.

On the flip side, the 1.0640-1.0630 zone now seems to protect the immediate downside ahead of the 1.0600 round-figure mark, below which the pair could fall to the 23.6% Fibo. level, around mid-1.0500s. Failure to defend the latter would shift the bias back in favour of bearish traders and make the EUR/USD pair vulnerable. Spot prices could then accelerate the fall towards the next relevant support, around the 1.0470 region, before eventually dropping to test sub-1.0400 levels in the near term.

fxsoriginal

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD steadies near 1.0550, looks to post modest weekly gains

EUR/USD steadies near 1.0550, looks to post modest weekly gains

EUR/USD has lost its bullish momentum after having climbed above 1.0570 with the initial reaction to the US data in the American session and retreated toward the mid-1.0500s. On a weekly basis, the pair remains on track to close in positive territory. 

EUR/USD News

GBP/USD struggles to hold above 1.2300

GBP/USD struggles to hold above 1.2300

GBP/USD has edged lower following a jump above 1.2300 in the early American session on Friday. The market mood remains upbeat ahead of the weekend with Wall Street's main indexes posting strong daily gains on upbeat US data. 

GBP/USD News

Gold stays below $1,830 as US yields edge higher

Gold stays below $1,830 as US yields edge higher

Gold continues to fluctuate below $1,830 on Friday and looks to close the second straight week in negative territory. Fueled by the risk-positive market environment, the benchmark 10-year US Treasury bond yield is up more than 1% on the day, limiting XAU/USD's upside.

Gold News

Why Cardano could surprise over the weekend

Why Cardano could surprise over the weekend

ADA  set to close out the week with a gain on the workday trading week and over the weekend? Central banks signaled that the rate hike cycle is ending, meaning less stress and tight conditions for trading, opening up room for some upside potential with Cardano set to pop above $0.55 and test a significant cap.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures