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- EUR/USD trimmed a major part of the previous day’s gains to a fresh nine-month peak.
- Rising US bond yields underpin the USD and keep a lid on any further gains for the pair.
- The recent hawkish by ECB officials continue to lend support to the common currency.
- Traders now look to the flash PMI prints from the Eurozone and the US for some impetus.
The EUR/USD pair touched its highest level since April on Monday, albeit struggled to find acceptance above the 1.0900 mark and finally settled with only modest intraday gains. The shared currency was underpinned by more hawkish comments by European Central Bank (ECB) officials, signalling additional jumbo interest rate hikes in coming months. In fact, ECB governing council member Klaas Knot said that interest rates would rise by 50 bps in both February and March and continue climbing in the months after. Furthermore, ECB President Christine Lagarde repeat the recent policy guidance and said that the central bank will keep raising interest rates quickly to slow inflation, which remains far too high.
Adding to this, a fall in natural gas prices helped ease fears of a recession in Europe and offered additional support to the EUR/USD pair. That said, a modest US Dollar strength, bolstered by a further recovery in the US Treasury bond yields, kept a lid on any further gains for the major. The USD uptick, meanwhile, lacked bullish conviction amid growing acceptance that the Federal Reserve will soften its hawkish stance. In fact, the current market pricing indicates a greater chance of a smaller 25 bps Fed rate hike move in February. This, along with a generally positive tone around the equity markets, acts as a headwind for the safe-haven greenback and continues to extend some support to the major, at least for now.
Despite the aforementioned supporting factors, the EUR/USD pair struggles to gain any traction and remains confined in a narrow trading band through the Asian session on Tuesday. Market participants now look forward to the release of the flash PMI prints from the Eurozone and the US for a fresh impetus. The immediate market reaction, however, is likely to remain limited as traders might prefer to wait on the sidelines ahead of the FOMC and the ECB monetary policy meetings next week. Nevertheless, rising bets for a less aggressive policy tightening by the Fed should keep the USD bulls on the defensive and support prospects for an extension of the recent appreciating move for the major.
Technical Outlook
From a technical perspective, momentum back above the 1.0900 mark might now confront some resistance near the overnight swing high, around the 1.0925 region. Some follow-through buying beyond the April 2022 peak, near the 1.0935 area, should allow bulls to reclaim the 1.1000 psychological mark.
On the flip side, any corrective pullback is more likely to find decent support near the 200-hour SMA, currently around the 1.0830-1.0825 region. This is closely followed by the 1.0800 round figure, which should act as a pivotal point. A convincing break below should pave the way for a slide below the 1.0765 area, towards testing the next relevant support near the 1.0700 mark. Some follow-through selling will negate the positive outlook and shift the near-term bias in favour of bearish traders.
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