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- A combination of factors prompted aggressive selling around EUR/USD on Thursday.
- Fading hopes for peace in Ukraine weighed heavily on the euro and exerted pressure.
- The risk-off impulse, Fed rate hike bets boosted the USD and added to the selling bias.
- Traders now seem to have moved on the sidelines ahead of the US monthly jobs data.
The EUR/USD pair witnessed a dramatic turnaround on Thursday and plunged nearly 125 pips from the fresh monthly peak, around the 1.3185 region amid fading hopes for a de-escalation in the Ukraine war. In the latest developments, Russian President Vladimir Putin struck back at Western sanctions and threatened to halt contracts supplying natural gas unless they are paid in roubles. The EU gets about 40% of its gas and 30% of its oil from Russia and has no easy substitutes if supplies are disrupted. This, in turn, fueled worries that the European economy would suffer the most from the spillover effects of the Ukraine crisis and weighed heavily on the shared currency.
The uncertainty over Ukraine took its toll on the global risk sentiment, which was evident from a sharp fall in the equity markets. The anti-risk flow boosted demand for traditional safe-haven assets, including the US dollar, which was seen as another factor that exerted additional downward pressure on the major. The greenback was further underpinned by expectations that the Fed would adopt a more aggressive policy stance to combat high inflation. In fact, the markets have been pricing in a 50 bps Fed rate hike move at the next two meetings. The bets were reaffirmed by Thursday's release of the US Core PCE Price Index, which rose to 5.4% YoY in February from the 5.2% previous.
The pair finally settled near the lower end of its daily trading range and snapped two successive days of the winning streak. Spot prices oscillated in a narrow trading band through the Asian session on Friday as traders preferred to move on the sidelines ahead of the release of the closely-watched US monthly jobs data. The popularly known NFP report is expected to show that the US economy added 490K jobs in March, down from 678K in the previous month. Meanwhile, the unemployment rate is anticipated to edge lower to 3.7% from 3.8% in February. The data would influence the Fed's policy outlook and drive the USD demand, which, in turn, should provide a fresh directional impetus to the major.
Technical outlook
From a technical perspective, the pair, so far, has been struggling to find acceptance above the 50% Fibonacci level of the recent sharp pullback from the vicinity of the 1.1500 psychological mark and faced rejection near the 50-day SMA. The subsequent decline, however, stalled near the 38.2% Fibo. level. Adding to this, neutral technical indicators on the daily chart warrant caution for aggressive traders. Hence, it will be prudent to wait for some follow-through selling before positioning for the resumption of the downtrend witnessed since early February.
In the meantime, any subsequent decline is likely to find some support near the 1.1030-1.1025 region ahead of the 1.1000 round figure and the 23.6% Fibo. level, around the 1.0970 area. A convincing break below will shift the bias back in favour of bearish traders and make the pair vulnerable to accelerate the fall towards the 1.0900 mark. The downward trajectory could further get extended and drag the pair towards the 1.0860 intermediate support en-route the YTD low, around the 1.0800 mark touched on March 7.
On the flip side, the 1.1100 round-figure mark now seems to act as immediate strong resistance. Sustained strength beyond could allow bulls to aim back to test the 50% Fibo. level, around mid-1.1100s. This is followed by the overnight swing high, around the 1.1185 region and the 1.1200 mark, which if cleared decisively should pave the way for a move towards the 61.8% Fibo. level, around the 1.1230-1.1235 zone. The upward trajectory could further get extended and eventually push the pair towards the 1.1300 mark.
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