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- A combination of factors dragged EUR/USD to a four-week low on Wednesday.
- The Ukraine crisis, uncertainty over the French elections weighed on the euro.
- Hawkish Fed expectations, the risk-off mood boosted the safe-haven greenback.
- Investors now look forward to the FOMC meeting minutes for a fresh impetus.
The EUR/USD pair added to its recent heavy losses and dropped to a four-week low, just below the 1.0900 mark during the Asian session on Wednesday. The shared currency was weighed down by fading hopes for a diplomatic solution to end the war in Ukraine, which, along with a strong US dollar rally, exerted downward pressure on the major. In the latest developments surrounding the Russia-Ukraine saga, the European Union announced new sanctions against Russia over its alleged war crimes in the Ukrainian town of Bucha. The sanctions include a ban on Russian coals, access to EU ports and transactions of four key Russian banks. Apart from this, worries about the outcome of the French elections turned out to be another factor that undermined the euro. The latest opinion polls indicated that French President Emmanuel Macron's far-right Eurosceptic rival, Marine Le Pen, has been closing the gap ahead of the first round on Sunday.
On the other hand, the greenback continued drawing support from firming expectations that the Fed would adopt a more aggressive policy stance to combat stubbornly high inflation. The bets were reaffirmed by hawkish comments from Fed Vice Chair Lael Brainard. She said that the Fed would continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as the May meeting. The markets quickly reacted and pushed the yield on the 2-year US government bond – which is highly sensitive to rate hike expectations – to its highest level since January 2019. Moreover, the yields on the 5-year and the benchmark 10-year bonds shot to their highest level since December 2018 and April 2019, respectively. This, along with a sell-off in the US equity markets, underpinned the safe-haven buck and further contributed to the offered tone surrounding the major.
There isn't any major market-moving economic data due for release from the Eurozone on Wednesday, leaving the pair at the mercy of the USD price dynamics. Later during the US session, investors will take cues from the FOMC monetary policy meeting minutes. The incoming geopolitical developments would influence the pair and allow traders to grab some short-term opportunities.
Technical outlook
From a technical perspective, the sustained overnight breakthrough, the 1.0960 horizontal support and a subsequent slide below the 1.0900 mark favour bearish traders. With technical indicators holding deep in the negative territory and still far from being in the oversold zone, the pair seems vulnerable to sliding further towards the mid-1.0800s. The downward trajectory could further extend towards challenging the YTD low, around the 1.0800 round-figure mark touched on March 7.
On the flip side, attempted recovery moves might now confront immediate resistance near the 1.0960 support breakpoint. Any further move up is more likely to meet with a fresh supply and remain capped near the 1.1000 psychological mark. Some follow-through buying would negate the bearish bias and prompt some short-covering move. The pair could then climb to the next relevant hurdle near the 1.1040 region before aiming back to reclaim the 1.1100 round-figure mark.
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