EUR/USD Outlook: Dovish ECB and uncertainty over Ukraine favour bearish traders

• EUR/USD struggled to register any meaningful recovery and languished near the two-year low.
• Dovish ECB, the Ukraine crisis weighed on the euro and acted as a headwind amid a stronger USD.
• Bets for a more aggressive Fed policy tightening, elevated US bond yields underpinned the buck.

The EUR/USD pair languished near the 1.0800 mark through the Asian session on Monday and remained well within the striking distance of the two-year low touched in reaction to a dovish European Central Bank decision last week. In fact, the ECB left its key policy rates unchanged and reaffirmed that rate hikes would only come sometime after the Asset Purchase Program (APP) is concluded in the third quarter. This disappointed some investors anticipating a more hawkish tilt amid the record-high inflation. Apart from this, growing worries about the potential economic fallout from the Ukraine crisis continued to act as a headwind for the shared currency.

On the other hand, the US dollar stood tall near its highest level since April 2020 and continued drawing support from expectations for a faster policy tightening by the Fed. The bets were reaffirmed by comments from New York Fed President John Williams on Thursday, saying that a half-point rate rise next month was a very reasonable option. This was seen as a further sign that even more cautious policymakers are on board for bigger rate hikes at upcoming meetings. Apart from this, inflation fears exacerbated the recent rise in the US Treasury bond yields, which, along with a softer risk tone further underpinned the safe-haven buck.

That said, relatively thin liquidity conditions on the back of a holiday in Europe held back traders from placing aggressive bets and might help limit deeper losses, at least for the time being. Nevertheless, the bias seems tilted firmly in favour of bearish traders and supports prospects for a further near-term depreciating move. In the absence of any major market-moving economic releases from the US, the US bond yields will play a key role in influencing the USD price dynamics. Traders will further take cues from developments surrounding the Russia-Ukraine saga and the broader market risk sentiment to grab some short-term opportunities.

Technical outlook

From a technical perspective, the post-ECB swing low, around the 1.0760-1.0755 region, now seems to act as a pivotal point. Some follow-through selling should pave the way for a fall towards the 1.0700 mark before spot prices eventually drop to the 2020 low, around the 1.0635 area.

On the flip side, attempted recovery might now confront immediate resistance near the 1.0850 region. Any subsequent move up could attract fresh selling near the 1.0880-1.0885 zone and remain capped near the 1.0900 mark. The next relevant barrier is pegged near the 1.0935-1.0940 area, which if cleared decisively might prompt some near-term short-covering move.