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- EUR/USD extended its sideways consolidative price move and remained confined in a range.
- The Ukraine crisis, hawkish Fed expectations underpinned the USD and acted as a headwind.
- Investors also seemed reluctant and preferred to wait for the outcome of the FOMC meeting.
The EUR/USD pair edged higher on Tuesday and moved away from the weekly low touched the previous day, though the uptick lacked bullish conviction. Despite the fact that several rounds of peace talks between Russia and Ukraine have failed to deliver a breakthrough, investors remain hopeful about a possible diplomatic solution to end the war. The optimism was evident from the risk-on impulse in the financial markets, which prompted some intraday selling around the safe-haven US dollar and extended support to the major.
That said, Russian forces have stepped up their aggression in Ukraine and intensified bombardment of Ukrainian cities. Given its geographical proximity, worries that the European economy would suffer the most from the spillover effects of the Ukraine crisis acted as a headwind for the shared currency. This was reinforced by the German ZEW Economic Sentiment Index, which deteriorated sharply to -39.3 for March from 54.3 in the previous month. Apart from this, hawkish Fed expectations helped limit losses for the USD and capped the pair.
The market seems convinced that the recent geopolitical developments might do little to hold back the US central bank from hiking its target funds rate to rein in inflationary expectations. This was seen as a key factor that pushed the yield on the benchmark 10-year US government bond to the highest level since June 2019. Hence, the market focus will remain on the outcome of a two-day FOMC meeting, scheduled to be announced during the US session on Thursday. The decision will influence the USD and provide a fresh impetus to the major.
The start of the policy tightening by the Fed could be seen as a fresh trigger for the USD bulls and set the stage for the resumption of the pair's bearish trend witnessed since early February. Heading into the key central bank event risk, traders will take cues from the release of the US monthly Retail Sales figures. Apart from this, fresh developments surrounding the Russia-Ukraine saga will drive the broader market risk sentiment and the USD demand. This, in turn, should allow traders to grab some meaningful trading opportunities.
Technical outlook
From a technical perspective, the pair, so far, has struggled to gain any meaningful traction and oscillated in a familiar range over the past few trading sessions. The subdued price moves warrant caution for aggressive traders and before positioning for a firm near-term direction. In the meantime, the overnight swing high, around the 1.1020 region, now seems to act as an immediate resistance ahead of the 1.1045 area. The next relevant resistance is pegged near the 1.1075 zone and the 1.1100 round-figure mark. Sustained strength beyond has the potential to lift spot prices further towards the 1.1145-1.1150 support breakpoint.
On the flip side, the 1.0910-1.0900 zone seems to have emerged as immediate support. Some follow-through selling would make the pair vulnerable to accelerate the fall towards the 1.0850 region. Failure to defend the said support levels would expose the YTD low, around the 1.0800 mark touched earlier this month. A convincing break below the latter should pave the way for a slide towards the 1.0765 intermediate support en-route the 1.0730-1.0725 region. This is followed by the 1.0700 round figure, below which the downward trajectory could get extended towards 2020 low, around the 1.0635 area.
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