EUR/USD extends the range play around 200-day SMA amid mixed fundamental cues
- EUR/USD oscillates in a narrow trading band on the last day of the week.
- A hawkish Fed and a minor pullback in the equity markets benefit the buck.
- Investors scaled back bets on ECB rate cuts and help limit losses for the Euro.
The EUR/USD pair extends its sideways consolidative price move above the 1.0800 mark through the mid-European session on Friday and is influenced by a combination of factors. Expectations that signs of an economic recovery in the Eurozone should allow the European Central Bank (ECB) to wait until June before easing its monetary policy continue to act as a tailwind for the shared currency. That said, the Federal Reserve's (Fed) hawkish outlook on interest rates lends some support to the US Dollar (USD) and caps the upside for the currency pair.
Meanwhile, the risk of a further escalation of geopolitical tensions in the Middle East, along with bets that global central banks will keep interest rates higher for longer, keeps a lid on the recent optimism in the markets and could further benefit the buck. This, in turn, makes it prudent to wait for a sustained strength and acceptance above a technically significant 200-day Simple Moving Average (SMA) before placing fresh bullish bets around the EUR/USD pair or positioning for an extension of a nearly two-week-old uptrend amid absent relevant US macro data.
Daily digest market movers: Remains confined in range amid delayed ECB-Fed rate cut bets
- The headline German IFO Business Climate Index rose to 85.5 in February from the 85.2 previous and the final GDP print confirmed that the Eurozone's largest economy contracted by 0.3% in Q4, failing to impress the Euro bulls
- A modest profit-taking slide in the equity markets lends some support to the safe-haven US Dollar and further caps the EUR/USD pair, though reduced bets for more aggressive rate cuts by the European Central Bank should limit losses.
- The S&P Global's flash Eurozone composite PMI remained in the contraction territory for the ninth straight month, although it improved to 48.9 in February from the 47.9 previous and suggested that the downturn is easing.
- The minutes of the January ECB policy meeting published on Thursday showed that inflation is coming under control, albeit talk of rate cuts was premature amid rapid wage growth and underlying price pressures.
- ECB executive board member Isabel Schnabel said that monetary policy has had a weaker impact on dampening demand for services and added that risks of de-anchoring inflation expectations have come down.
- ECB policymaker and Bundesbank Chief Joachim Nagel said on Friday, that inflation, including 'hard core' will remain markedly higher than 2% in coming months and it is too early to cut rates even if appears tempting.
- The minutes of the late January FOMC meeting on Wednesday pointed to uncertainty over how long borrowing costs should remain at the current level to bring down inflation back to the central bank's 2% target.
- Furthermore, influential Fed officials – Fed Vice Chair Philip Jefferson, Fed Governors Lisa Cook and Christopher Waller – raised concerns about cutting rates too quickly amid sticky inflation and the US economic resilience.
- The CME Group's FedWatch Tool indicates that the markets are currently pricing in around a 30% chance that the Fed will cut interest rates in May, while the odds for a move at the June policy meeting stand at about 66%.
- The yield on the benchmark 10-year US government bond holds steady near its highest level since late November, which, along with geopolitical risk, should act as a tailwind for the buck and cap the currency pair.
Technical Analysis: EUR/USD needs to find acceptance above 200-day SMA for bulls to seize control
From a technical perspective, this week's breakout through the 23.6% Fibonacci retracement level of the December-February downfall was seen as a key trigger for bullish traders. Adding to this, oscillators on the daily chart have just started gaining positive traction and support prospects for additional gains. That said, the overnight failure to find acceptance above the very important 200-day Simple Moving Average (SMA) and the subsequent pullback warrants some caution.
In the meantime, any subsequent move up is likely to confront some resistance near the 1.0865 zone or the 38.2% Fibo. level, ahead of a multi-week high touched on Thursday. Some follow-through buying beyond the 1.0900 mark, meanwhile, has the potential to lift the EUR/USD pair further towards the 50% Fibo. level, around the 1.0965-1.0970 region. The momentum could extend further and allow bulls to reclaim the 1.1000 psychological mark for the first time since January 11.
On the flip side, the 1.0800 mark, or the 23.6% Fibo. level seems to protect the immediate downside. Any further decline is more likely to attract fresh buyers near the 1.0760 horizontal zone. The latter should act as a pivotal point, which if broken decisively will suggest that the recent recovery from a three-month low witnessed over the past two weeks or so has run out of steam already. The EUR/USD pair might then accelerate the downfall towards retesting sub-1.0700 levels.
Euro price today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.02% | -0.01% | 0.08% | -0.06% | 0.11% | 0.04% | 0.15% | |
| EUR | -0.02% | -0.03% | 0.07% | -0.06% | 0.09% | 0.01% | 0.11% | |
| GBP | 0.02% | 0.03% | 0.12% | -0.05% | 0.14% | 0.04% | 0.14% | |
| CAD | -0.08% | -0.07% | -0.12% | -0.15% | 0.03% | -0.06% | 0.03% | |
| AUD | 0.07% | 0.08% | 0.03% | 0.15% | 0.16% | 0.09% | 0.17% | |
| JPY | -0.11% | -0.08% | -0.13% | -0.01% | -0.17% | -0.07% | 0.01% | |
| NZD | -0.05% | -0.02% | -0.04% | 0.06% | -0.08% | 0.08% | 0.10% | |
| CHF | -0.13% | -0.11% | -0.16% | -0.04% | -0.19% | -0.03% | -0.10% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Fed FAQs
What does the Federal Reserve do, how does it impact the US Dollar?
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
How often does the Fed hold monetary policy meetings?
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
What is Quantitative Easing (QE) and how does it impact USD?
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
What is Quantitative Tightening (QT) and how does it impact the US Dollar?
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
