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- The post-US CPI volatility triggered good two-way price moves around EUR/USD on Wednesday.
- The energy crisis in Europe continued weighing on the euro and capped the attempted recovery.
- Aggressive Fed rate hike bets, recession fears underpinned the USD and favour bearish traders.
The EUR/USD pair witnessed good two-way price moves on Wednesday and was influenced by the intraday US dollar volatility that followed the release of the US consumer inflation figures. The US Labor Department reported that the headline US CPI rose 1.3% in June and the yearly rate accelerated from 8.6% in May to 9.1% – the highest level since November 1981. The readings were above expectations and sealed the case for another large interest rate hike by the Federal Reserve. Adding to this, Atlanta Fed President Raphael Bostic said that everything is in play to combat persistently rising inflation pressures. The markets were quick to react and started pricing in the possibility of a historic 100 bps Fed rate hike move later this month. This, in turn, lifted the USD to a fresh 20-year high and dragged the pair briefly below the parity mark for the first time since December 2002.
The initial market reaction, however, fizzled out rather quickly. A typical “buy the rumour, sell the news” kind of trade triggered a sharp USD pullback and prompted some short-covering around the EUR/USD pair. Spot prices rallied around 125 pips from the daily low, though struggled to find acceptance above the 1.0100 round figure. Fears that a halt to gas flows from Russia could trigger an economic crisis in the Eurozone and curtail the European Central Bank’s ability to raise rates acted as a headwind for the shared currency. Apart from this, growing fears about a possible global recession continued lending support to the safe-haven greenback. This, in turn, kept a lid on any meaningful upside for the major and attracted fresh selling at higher levels. The overnight retracement slide extended through the Asian session on Thursday amid a fresh bout of USD buying interest.
Market participants now look forward to the US economic docket – featuring the release of the Producer Price Index and the usual Weekly Initial Jobless Claims. This, along with the broader market risk sentiment, will influence the USD price dynamics and provide some impetus to the EUR/USD pair. The fundamental backdrop, however, remains tilted firmly in favour of bearish traders and suggests that any attempted recovery move might still be seen as a selling opportunity.
Technical outlook
From a technical perspective, the EUR/USD pair, so far, has struggled to register any meaningful recovery and the range-bound price action might still be categorized as a consolidation phase. Furthermore, the recent downfall over the past two-and-half weeks or so has been along a downward sloping channel. This further adds credence to the near-term negative outlook and supports prospects for an extension of the recent downward trajectory. Sustained weakness below the 1.000 psychological mark would reaffirm the bearish outlook and make the EUR/USD pair vulnerable. Spot prices could then accelerate the fall towards the 0.9915-0.9910 region en-route the next relevant support near the 0.9850-0.9845 zone.
On the flip side, the 1.0100 round-figure mark, followed by the overnight swing high, around the 1.0120-1.0125 region might now act as immediate strong resistance. Any subsequent move up is more likely to confront stiff resistance near the 1.0275-1.0280 region ahead of the 1.0300 mark. Sustained strength beyond should lift the EUR/USD pair towards the 1.0350 support breakpoint, now turned resistance.
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