About us 
- EUR/USD retreated sharply from a multi-week high set on Tuesday amid resurgent USD demand.
- The risk-off impulse, US-China tensions, hawkish remarks by Fed officials boosted the greenback.
- The downfall, however, stalls near mid-1.0100s, warranting caution for aggressive bearish traders.
The EUR/USD pair witnessed a dramatic turnaround and retreated around 130 pips from the vicinity of the 1.0300 mark, or a four-week high touched on Tuesday. The US dollar made a solid comeback from its lowest level since July 5 and turned out to be a key factor that exerted heavy downward pressure on the major. Against the backdrop of growing recession fears, mounting diplomatic tensions over US House Speaker Nancy Pelosi's Taiwan visit tempered investors' appetite for perceived riskier assets. This was evident from a generally weaker tone around the equity markets, which drove some haven flows towards the greenback. The intraday USD buying picked up pace after several Fed officials hinted that more interest rate hikes are coming in the near term.
In fact, San Francisco Fed President Mary Daly noted that work on inflation is nowhere near almost done and that policymakers are still resolute and completely united on achieving price stability. Separately, Chicago Fed President Charles Evans said that he hopes the US central bank can raise rates by 50 bps in September and continue with 25 bps hikes until the start of the second quarter in 2023. Later, Loretta Mester, president of the Cleveland Fed, said that several more months of evidence that inflation has peaked will be needed before the central bank ends its rate hike cycle. Adding to this, St. Louis Fed President James Bullard said that the US central bank is committed to the inflation target and that a soft landing is feasible if the regime shift is executed well.
The hawkish remarks assisted the US Treasury bond yields to reverse an intraday fall to the lowest level since April and provided an additional lift to the buck. That said, a modest recovery in the global risk sentiment prompted some USD selling during the Asian session on Wednesday and helped limit any further losses for the EUR/USD pair. Spot prices have now climbed back to the 1.0200 neighbourhood as market participants now look forward to the release of the final Eurozone Services PMIs for some impetus. Later during the early North American session, traders will take cues from the US ISM Services PMI. This, along with the US bond yields and the broader risk sentiment, might influence the greenback and allow traders to grab short-term opportunities.
Technical Outlook
From a technical perspective, the EUR/USD pair, so far, has struggled to find acceptance above the 38.2% Fibonacci retracement level of the 1.0787-0.9952 downfall. The overnight sharp pullback further warrants some caution for bullish traders. The overnight retracement slide, however, stalled near the 23.6% Fibo. level. The mentioned support, around the 1.0150 area, should now act as a pivotal point for intraday traders. Some follow-through selling would expose the 1.0100 round-figure mark, below which spot prices could slide back towards the parity mark. The downward trajectory could further get extended towards challenging the YTD low, around the 0.9950 region touched on July 14.
On the flip side, the 1.0225-1.0230 area now seems to act as an immediate strong resistance ahead of the 1.0270-1.0280 supply zone. The latter coincides with the 38.2% Fibo. level and is closely followed by the 1.0300 round-figure mark. Bulls are likely to wait for a sustained move beyond the said handle before positioning for an extension of the recent recovery from a nearly two-decade low. The EUR/USD pair could then surpass an intermediate resistance near the 1.0365-1.0370 region, or the 50% Fibo. level, and aim to reclaim the 1.0400 mark, which coincides with the 50-day SMA.
previous
