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- EUR/USD extended its sideways consolidative price moves in a two-week-old trading range.
- Concerns about the economic fallout from the Ukraine crisis acted as a headwind for the euro.
- Aggressive Fed rate hike bets continued underpinning the USD and contributed to cap gains.
- The technical set-up favours bearish traders as the focus remains glued to the US CPI report.
The EUR/USD pair continued with its struggle to gain meaningful traction and has been oscillating in a range over the past two weeks. Spot prices remained well within striking distance of a more than five-year low touched at the end of the previous month amid lingering recession fears. Investors remain concerned that the European economy will suffer the most from the Ukraine crisis, which, in turn, acted as a headwind for the shared currency. Apart from this, the underlying strong bullish sentiment surrounding the US dollar exerted some downward pressure on the major during the latter part of trading action on Tuesday.
The USD stood tall near a two-decade high and remained supported by expectations that the Fed would take more drastic action to bring inflation under control. In fact, the markets are still pricing in a further 200 bps rate hike for the rest of 2022 amid tight global supply chains resulting from China's zero-covid policy and the war in Ukraine. Hence, the focus will remain on the release of the US CPI report, due later during the early North American session this Wednesday. The data could indicate how aggressively the Fed would tighten its monetary policy, which, in turn, would influence the USD and provide a fresh directional impetus to the major.
In the meantime, signs of stability in the financial markets and the recent sharp pullback in the US Treasury bond yields held back the USD bulls from placing fresh bets. This helped the EUR/USD pair to hold steady above the 1.0500 psychological mark through the Asian session on Wednesday. Market participants now look forward to the final German CPI figures for some impetus. Apart from this, traders will take cues from European Central Bank President Christine Lagarde's remarks at a conference in Ljubljana. This could produce some short-term trading opportunities ahead of the key data risk.
Technical outlook
From a technical perspective, the recent range-bound price action constitutes the formation of a rectangle on short-term charts. Against the backdrop of a sharp fall witnessed over the past three months or so, this could still be categorized as a bearish consolidation phase. Moreover, technical indicators on the daily chart are holding deep in the bearish territory and have also moved away from the oversold zone. The technical set-up seems tilted firmly in favour of bearish traders. That said, it will be prudent to wait for sustained weakness below the 1.0500 psychological mark, or the lower end of the trading range, before positioning for any further slide. Spot prices could accelerate the fall towards intermediate support near the 1.0450 area en route to the 1.0400 mark and 2017 low, around the 1.0340 region.
On the flip side, immediate resistance is pegged just ahead of the 1.0600 round figure, or the weekly top. This is followed by the last week's swing high, around the 1.0630-1.0640 region, which if cleared decisively would suggest that the pair has formed a near-term bottom and trigger an aggressive short-covering move. Spot prices might then aim to reclaim the 1.0700 round-figure mark. The recovery momentum could further get extended, though it runs the risk of fizzling out near the previous YTD low, around the 1.0760-1.0755 area.
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