Forex world

November 22, 2023

EUR/USD manages to hold above 1.0900 mark

EUR/USD attracts some dip-buying on Wednesday, albeit lacks follow-through.

The hawkish FOMC minutes lend some support to the USD and act as a headwind.

The downside seems limited in the wake of hawkish remarks by ECB’s Lagarde.

The EUR/USD pair edges higher during the Asian session on Wednesday and for now, seems to have stalled the previous day's corrective pullback from the 1.0965 area, or its highest level since August 11. Spot prices currently trade around the 1.0915-1.0920 area, up less than 0.10% for the day, and remain at the mercy of the US Dollar (USD) price dynamics.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, struggles to capitalize on the overnight modest bounce from a near three-month low and turns out to be a key factor lending support to the EUR/USD pair. The minutes from the Federal Reserve's (Fed) October 31-November 1 meeting revealed that policymakers backed the case for higher for longer interest rates for some time to tame inflation. The hawkish outlook triggered an intraday rally in the US Treasury bond yields and prompted some USD short-covering move on Tuesday.

Market participants, however, seem convinced that the US central bank will keep rates steady rather than hiking and are still pricing in the possibility of a first-rate cut at the April 30-May 1 policy meeting. This, in turn, drags the yield on the benchmark 10-year US government bond back to a two-month low and caps the upside for the Greenback. Furthermore, the overnight hawkish remarks by the European Central Bank (ECB) President Christine Lagarde offer some support to the shared currency and act as a tailwind for the EUR/USD pair.

Speaking at an event in Berlin, Lagarde said that it was too early to declare victory over inflation and that bets based on short-term data flow are premature. This forces investors to scale back their expectations that the ECB's next move is set to be a rate cut, as soon as April, which, in turn, is holding back bulls from placing fresh bets around the EUR/USD pair. Hence, it will be prudent to wait for some follow-through buying before positioning for an extension of the recent breakout momentum through the 100- and 200-day Simple Moving Averages (SMAs) confluence.

Moving ahead, there isn't any relevant market-moving economic data due for release from the Eurozone on Wednesday. The US economic docket, meanwhile, features the release of the Weekly Initial Jobless Claims, Durable Goods Orders and the revised Michigan Consumer Sentiment Index later during the early North American session. This, along with the US bond yields and the broader risk sentiment, should influence the USD demand and provide some impetus to the EUR/USD pair.

Technical levels to watch

EUR/USD


No comments:

Post a Comment