EUR/USD sellers flex muscles around 1.1300 with eyes on Fed
- EUR/USD fades bounce off monthly low amid pre-Fed caution.
- US Dollar tracks downbeat yields as markets prepare for hawkish FOMC.
- ECB’s Lane turned down concerns over Omicron-linked challenges to inflation, wages.
- Second-tier US data may entertain traders with eyes on Fed Chair Powell.
EUR/USD bears take a breather around 1.1300 as markets brace for the Fed’s verdict, following a two-day downtrend.
Even so, hawkish expectations from the US Federal Reserve (Fed), versus recently shrugged off inflation fears by the ECB policymaker, keep EUR/USD bears hopeful.
It should be noted, however, that sluggish yields and the US dollar’s pullback from a three-week top challenges the pair’s short-term moves ahead of crucial market events.
That said, the US Dollar Index (DXY) pulls back from the three-week top, marked on Tuesday while easing to 95.95 at the latest. Further, US 10-year Treasury yields seesaw around 1.78%, being barely positive after declining for the last five days.
In addition to the Fed concerns, the recently downbeat yields could be linked to the geopolitical tension surrounding Russia and Ukraine, as well as the downbeat economic forecasts by the International Monetary Fund (IMF).
Talking about data, firmer German and Eurozone IFO numbers joined downbeat US CB Consumer Confidence and Richmond Fed Manufacturing Index to lift the EUR/USD pair the previous day. However, the upbeat US inflation expectations, per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, kept sellers in control afterward.
On the contrary, , the European Central Bank (ECB) Chief Economist Philip Lane’s rejection of Omicron-linked inflation fears also weighs on the EUR/USD prices. “The coronavirus Omicron variant is not turning out to be a factor that will influence the activity levels for the year,” said the policymaker.
Looking forward, second-tier US data relating to housing and trade may entertain EUR/USD traders as markets await Fed Chair Jerome Powell’s speech amid hopes of getting clues for March rate lift-off and/or balance sheet normalization. It should be observed that the Fed’s tapering is on and the hint for ending the same during February may also be termed as a bearish case for the EUR/USD.
Read: Federal Reserve Interest Rate Decision Preview: Inflation, Omicron and equities
Technical analysis
Failures to extend the bounce off a two-month-old support line beyond a one-week-old resistance line and 20-DMA, respectively around 1.1320 and 1.1345, keep EUR/SD sellers hopeful around the stated support line near 1.1300.
If at all the major currency pair rises past 1.1345, the 38.2% Fibonacci retracement (Fibo.) of October-November 2021 downside, near 1.1380, will be the key as it holds the gate for the pair’s further rally towards the monthly high of 1.1481.
Alternatively, multiple lows marked since late November highlight 1.1230 as the next support following the EUR/USD pair’s clear downside break of 1.1290.