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- EUR/USD continued losing ground through the Asian session on Monday amid sustained USD buying.
- The Russia-Ukraine crisis, rising bets for a 50-bps Fed rate hike move underpinned the safe-haven buck.
- A sustained break below the 1.0900 round-figure mark will set the stage for a further depreciating move.
The EUR/USD pair extended its recent downfall witnessed over the past one week or so and witnessed some follow-through selling during the Asian session on Monday. Investors remain concerned that the European economy would suffer the most from the spillover effects of the Ukraine crisis. This was reinforced by Friday's release of the dismal German Ifo Business Climate Index, which dropped from 98.5 to 90.8 in March and acted as a headwind for the shared currency. On the other hand, a combination of factors benefitted the US dollar, which further exerted downward pressure on the major.
Against the backdrop of the lack of progress in the Russia-Ukraine peace negotiations, hawkish Fed expectations continued lending support to the safe-haven greenback. Investors seem convinced that the Fed would adopt a more aggressive policy to combat high inflation. In fact, the markets have been pricing in a 50 bps rate hike in the May meeting amid worries that surging commodity prices would put upward pressure on the already high consumer prices. This, in turn, pushed the yield on the 10-year US government bond beyond the 2.5% threshold, or a fresh two-year and underpinned the buck.
There isn't any major market-moving economic data due for release on Monday, either from the Eurozone or the US, leaving the pair at the mercy of the USD price dynamics. Hence, traders will take cues from developments surrounding the Russia-Ukraine saga, which, along with the US bond yields, should influence the USD. The focus, however, will remain on this week's important US macro data, including the closely-watched monthly jobs data (NFP) on Friday. Nevertheless, the pair remains depressed for the fourth successive day – also marking the sixth day of a negative move in the previous seven – and seems vulnerable to slide further.
Technical outlook
From a technical perspective, sustained weakness below mid-1.0900s could make the pair vulnerable to accelerate the slide back towards the 1.0900 round-figure mark. Some follow-through selling would expose the YTD low, around the 1.0800 mark, with some intermediate support near the 1.0860-1.0850 region. A convincing break below the former should pave the way for a slide towards the 1.0765 area 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.
On the flip side, the key 1.1000 psychological mark now seems to act as immediate strong resistance. The next relevant hurdle is pegged near Friday's swing high, around the 1.1035-1.1040 region, above which a bout of short-covering should allow bulls to aim back to reclaim the 1.1100 round-figure mark. The recovery momentum could then lift spot prices back towards the 1.1135-1.1145 barrier, which if cleared decisively will suggest that the pair has bottomed out in the near term.
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