Forex world

April 19, 2023

EUR/USD retreats towards 1.0950

- EUR/USD reverses from intraday high, fades the previous day’s bounce off one-week low.

- Fed, ECB policymakers remain hawkish but divergence between US and European data, yields weigh on greenback.

- Geopolitical fears, cautious mood ahead of US debt ceiling plan prod Euro pair buyers.

- Final readings of Eurozone inflation, Fed Beige Book eyed for fresh impulse.

EUR/USD takes offers to reverse the previous day’s gains, down 0.05% near 1.0965 amid very early Wednesday morning in Europe. In doing so, the Euro pair struggles to justify hawkish comments from the European Central Bank (ECB) and the Federal Reserve (Fed) officials amid sour sentiment and anxious mood ahead of the key catalysts.

That said, the recent chatters surrounding the US House China Committee’s discussion about the Taiwan invasion scenario and a likely drag on the US debt ceiling decision seem to exert downside pressure on the risk profile of late. On the same line could be the recently downbeat US data and hawkish Fed bets. It should be observed that mixed earnings also prod the risk profile and underpin the US Dollar’s corrective bounce.

Furthermore, Bloomberg released news suggesting China’s role in the Russia-Ukraine war, which in turn joins US President Joe Biden’s resistance in negotiating debt limit to also weigh on the sentiment.

Elsewhere, St. Louis Federal Reserve President James Bullard said on Tuesday, in an interview with Reuters, “Interest rates will need to continue to rise in the absence of clear progress on inflation.” On Monday, Richmond Fed President Thomas Barkin said that he wants to see more evidence of inflation settling back to target. Recently, Atlanta Fed President Raphael W. Bostic who recently mentioned that the economy is still gaining momentum, but inflation is too high.

On the other hand, ECB Chief Economist Philip Lane stated Tuesday that the Euro Area economy will not go into recession while also adding that some of the banking tensions have receded and that negative supply shocks are receding.

It should be noted that the mostly upbeat EU data contrasts with the downbeat US housing figures to prod the EUR/USD bears. That said, the latest ZEW Survey data signals that Germany’s headline Economic Sentiment Index worsened in April to 4.1 from 13.0 in March, versus the market expectation of 15.1. However, the Current Situation Index improved to -32.5 from -46.5, compared to analysts’ estimation of -40.0. On a broader front, Eurozone ZEW Economic Sentiment Index dropped to 6.4 for April compared to 10.0 prior and 19.8 market forecasts.

In case of the US data, the US Housing Starts and Building Permits roiled the mood with downbeat prints for March on Tuesday. That said, the Housing Starts eased to 1.42M versus 1.432M prior and 1.40M market forecasts whereas the Building Permits dropped to 1.413M from 1.55M previous readings and analysts’ estimations of 2.2M. It’s worth noting that the NY Empire State Manufacturing Index and the US National Association of Home Builders (NAHB) housing market index marked upbeat prints on Monday and allowed the US Dollar buyers to remain firmer.

Against this backdrop, S&P 500 Futures retreated from the highest levels since early February, marked the previous day, as it prints mild losses near 4,178. It’s worth noting that the US stock futures snap a two-day winning streak with the latest inaction. Also, the US 10-year and two-year Treasury bond coupons dropped for the first time in four days by the end of Tuesday, sluggish around 3.59% and 4.21% by the press time.

Looking ahead, EUR/USD traders may witness further consolidation of the previous day’s gains amid a mildly offbeat mood. However, the final readings of the bloc’s inflation numbers, per the Harmonized Index of Consumer Prices (HICP) gauge for March, will precede the monthly print of the Fed’s Beige Book to entertain the pair traders.

Technical analysis

A one-month-old ascending trend channel keeps EUR/USD buyers hopeful unless the quote breaks the 1.0925-1105 channel area.


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