EUR/USD Moves Beyond Multi-Week Old Ascending Trend-Support And 200-Day EMA Supports Further Selling
Key Takeaways:
- The EUR/USD kicks off a new week on the back foot, moving back below the 1.08100 mark during the Asian session
- A goodish pick up in U.S. bond yields and a softer risk tone benefit the safe-haven back and help cap the upside for the EUR/USD pair
- A slew of weak macro data released last week continues to act as a headwind to the euro and helps exert downward pressure on the EUR/USD pair
The EUR/USD pair witnessed heavy selling pressure on Monday during the early Asian session to kick off a new week on the back foot. As of press time, the EUR/USD cross is trading at 1.08163 level, down 0.14%/ 15.6 pips for the day and is currently placed below a multi-week ascending trend-channel support.
A goodish bounce in long-dated U.S. Treasury bond yields amid firm hawkish Fed expectations helped revive the U.S. Dollar demand, which helped exert downward pressure on the EUR/USD cross.
This comes from the latest Fed's Meeting minutes released last week on Wednesday, which showed the Fed is concerned about cutting rates too soon, signaling early rate cuts were entirely off the table.
The January FOMC Meeting minutes came days after a U.S. Bureau of Labor Statistics (BLS) report showed consumer and wholesale inflation rose in the U.S. in January, which, when combined with robust U.S. job data and the recent hawkish Fed official's comments, reaffirm market bets that the Fed will leave rates unchanged during the March and May meetings and start cutting rates during the third quarter of 2024.
CME's fed watch tool also shows fed fund futures traders have priced in an 89.5% and 64.5% chance the Fed will keep rates unchanged at 5.25% - 5.5% during the March and May meetings, respectively, up from 82.5% and 39.3% chance early last week, with the first-rate cut now seen during the June meeting.
Shifting to the eurozone docket, a slew of weak macro data released last week continues to act as a headwind to the euro and is seen as another factor helping exert downward pressure on the EUR/USD pair. A German Federal Statistical Office report released on Friday showed Germany's economy contracted by 0.2% year-on-year in the final quarter of 2023, marking a consecutive decline from the 0.3% contraction in the preceding period.
Additionally, preliminary estimates showed that the HCOB Flash Germany Manufacturing PMI unexpectedly fell to 42.3 in February of 2024, the lowest in four months, compared to 45.5 in January and forecasts of 46.1.
Furthermore, the inflation rate in the Euro Area was confirmed at 2.8% in January 2024, little changed from December's 2.9% and above the European Central Bank's target of 2.0%. The CPI dropped by 0.4% monthly, and the core index fell by 0.9%.
That said, the greenback continues to be supported by the modest bounce in the U.S. equity markets, which, when combined with the softer risk tone, might help extend further gains around the EUR/USD pair.
As we advance, investors look forward to the euro docket featuring German Bundesbank President Nagel's speech during the early North American session. Investors will look for cues from releasing the U.S. New Home Sales data report later during the mid-North-American session.
Technical Outlook: Four-Hour EUR/USD Price Chart
From a technical perspective, the recent break below a multi-week ascending trend-channel support and the subsequent move below the very important 200-day (brown) Exponential Moving Average (EMA), which coincides with the pivot level (P) at the 1.08230 points to further depreciating moves around the shared currency. However, the YTD low at the 1.08119 level now acts as an immediate hurdle, warranting caution to traders against placing aggressive bearish bets. Traders should thus wait for strong follow-through selling below this level before positioning for further selling around the EUR/USD cross. Any move below the aforementioned level will find initial support at the 1.07894 level (S1). A decisive move below this level will pave the way for a drop toward the 1.07625 level (S2), below which EUR/USD could accelerate the fall toward the 1.07236 level. The EUR/USD pair could extend a leg toward the February 2024 monthly low at 1.06950 in highly bearish cases.
On the flip side, if buyers resurface and spark a bullish turnaround, initial resistance comes in at the 1.08230 level. A convincing move above this level will negate the near-term bearish outlook and pave the way for a rise toward the key support level now turned resistance level, about which, if the price pierces above this multi-week ascending trend-channel support, buying interest could gain further momentum paving the way for a rally toward the 1.08879 ceiling followed by the 1.09340 level.