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- A combination of negative factors dragged EUR/USD to a fresh multi-year low on Thursday.
- Aggressive Fed rate hike bets, the risk-off mood continued underpinning the safe-haven USD.
- Looming recession risk led by the Ukraine crisis exerted heavy downward pressure on the euro.
The EUR/USD pair witnessed aggressive selling on Thursday and finally broke down through a near one-week-old trading range. The steep intraday decline dragged spot prices to the lowest level since January 2017 and was sponsored by a combination of factors. The US dollar rallied to a fresh 20-year high amid the global flight to safety. The markets now seem worried that a more aggressive policy tightening by major central banks to constrain inflation could hit global economic growth. This, along with the resurgence of geopolitical tensions, took its toll on the risk sentiment and forced investors to take refuge in the traditional safe-haven assets.
In the latest developments surrounding the Russia-Ukraine saga, the latter announced that it would suspend Gazprom gas transit on its territory. Separately, Finland confirmed that it would apply to join NATO “without delay” and Sweden is expected to follow suit, citing security concerns following Russia's invasion of Ukraine. Meanwhile, Russia vowed an unspecified response. Given its proximity to the Ukraine war, the Eurozone's economy is expected to suffer the most from the crisis. This might prevent the European Central Bank from lifting interest rates and leave it even further behind the Fed, which exerted additional pressure on the euro.
Meanwhile, the anti-risk flow led to the overnight sharp fall in the US Treasury bond yields and kept a lid on any further gains for the greenback. Apart from this, hawkish comments by ECB policymakers, hinting towards a July interest rate hike, extended some support to the pair amid extremely oversold conditions. Furthermore, a goodish rebound in the US equity futures undermined the safe-haven buck and assisted the EUR/USD pair in regaining some positive traction during the Asian session on Friday. That said, any meaningful recovery still seems elusive. Market participants now look forward to the Eurozone Industrial Production data and the prelim US Michigan Consumer Sentiment Index for some impetus on the last day of the week.
Technical outlook
From a technical perspective, the pair stalled the overnight slump near the 1.0350 area, just ahead of the 2017 swing low. The latter, around the 1.0340 region, should now act as a key pivotal point, which if broken decisively will be seen as a fresh trigger for bearish traders. The pair might then accelerate the downward trajectory towards the 1.0300 round figure en route to the next major support near the 1.0210-1.0200 zone.
On the flip side, any meaningful recovery back above the 1.0400 mark is more likely to confront stiff resistance and remain capped near the 1.0475 region. This is closely followed by the 1.0500 psychological mark, above which a bout of short-covering has the potential to lift back towards the 1.0580-1.0600 area.
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