EUR/USD turns dry above 1.0400 amid quiet market mood, Eurozone Gas price structure eyed

EUR/USD is displaying a lackluster performance in the Tokyo session after resurfacing from the critical support of 1.0382. The Euro pair is oscillating above the round-level support of 1.0400. The major is awaiting a potential trigger for a fresh impetus as the market mood is extremely quiet amid the holiday in the United States on account of Thanksgiving Day.

The USD Index (DXY) is signaling a rangebound structure after finding a cushion around 105.64. The absence of sheer trading activity has shifted currencies to the sidelines, however, the risk impulse is still bullish. S&P500 futures recorded some gains on Thursday despite the United States markets being closed. The hangover of less-hawkish commentary from Federal Reserve (Fed) policymakers is expected to remain for a while. As the Federal Reserve is highly tilted towards the alternative of decelerating the pace of interest rate hikes, the US Dollar will remain on the tenterhooks.

Meanwhile, the Euro is expected to enjoy extra gains as European Central Bank (ECB) policymakers are seeing further policy restrictions due to the absence of a peak in Eurozone Inflation.

Federal Reserve is set to ditch 75 bps rate hike culture

The United States Consumer Price Index (CPI) has already displayed signs of a slowdown in its October inflation report. This has provided an opportunity for Federal Reserve chair Jerome Powell to slow down the pace of rate hike and shifts its focus towards enlarging financial risks. Back-to-back bigger rate hikes structure by the Federal Reserve (Fed) has exposed firms to skip their monthly obligations due to higher interest payments. Also, a slowdown in the interest rate hike pace by the Federal Reserve would provide an opportunity to observe the accomplishments led by efforts made yet in cooling down inflation.

After Federal Reserve policymakers signaled that a decline in interest rate hike pace would be optimal, the US Dollar is going through a bumpy ride. The US dollar is expected to decline further to near three-month low of around 105.34. Contrary to the efficient market hypothesis, economists at ANZ Bank have considered the move an exaggerated one as headline inflation at 7.7% is still extremely far from the targeted rate of 2%.

Further policy tightening by the European Central Bank to support Euro

Persistent supply chain risks in the Eurozone after Russia’s invasion of Ukraine have accelerated inflation and deep recession risks. The Eurozone inflation has reached to 10.7% and to curtail the same, ECB Governing Council member Isabel Schnabel said on Thursday that they will probably need to raise interest rates further into restrictive territory, as reported by Reuters. European Central Bank policymaker further added that room for slowing down the pace of interest rate adjustments remains limited. And, the largest risk for central banks remains a policy that is falsely calibrated on the assumption of a fast decline in inflation.

Meanwhile, accounts of the European Central Bank's (ECB) October policy meeting revealed on Thursday indicated that a few members also voted for 50 basis points (bps) interest rate hike. The European Central Bank Governing Council believes that policy tightening could be paused in case there will be signs of a deep and prolonged recession.

A structure of price cap on Eurozone gas is awaited

European Union (EU) authorities are planning to levy a ceiling on energy prices to safeguard households from a sheer decline in their real income. In response to that, Intercontinental Exchange (ICE) has warned that the finalization of the ceiling on European gas would force energy traders to stump up an additional $33 bln in margin payments, as reported by Financial Times. Such a large increase in margin requirements could “destabilize the market”,

EUR/USD technical outlook

EUR/USD is playing with the 200-period Exponential Moving Average (EMA) at 1.0389 on a daily scale. The corrective move in the asset after printing a high of 1.0482 on November 15 to near 1.0226 has been supported by the upward-sloping trendline placed from November low at 0.9730. Going forward, potential resistances are plotted from June 27 high at 1.0615, and May 30 high at 1.0787.

The Relative Strength Index (RSI) (14) is oscillating in a bullish range of 60.00-80.00, which indicates that the upside momentum is active.