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- EUR/USD faces a sharp sell-off as Middle East crisis deepen.
- ECB policymakers pushed back market expectations of early rate cuts due to high inflation.
- The major will be guided by the US Retail Sales data, which will be published on Wednesday.
Persistent Middle East tensions have improved the appeal for safe-haven assets while risk-perceived currencies have been hit hard in the Asian session on Tuesday. The EUR/USD pair has declined to near weekly low around 1.0900 amid dull risk-appetite as Iran-backed-Houthi rebels threatened to retaliate for airstrikes launched by the United States and the United Kingdom in Yemen.
The Euro fails to gain strength despite European Central Bank (ECB) policymaker Joachim Nagel pushed back against market expectations of early rate cuts. Nagel said it is too early to discuss rate cuts as inflation is too high.
ECB policymaker Robert Holzmann opposed rate cuts for the entire year, citing upside risks to energy prices due to deepening conflicts over commercial shipments from the Red Sea.
Meanwhile, faltered economic development in the German economy in 2023, weighed down by inflation and global headwinds are expected to keep the Euro under stress. The German economy shrank by 0.3% in 2023 as higher interest rates by the ECB were resulted in unfavourable financial conditions.
The US Dollar Index (DXY) rallies to near 103.00 amid upbeat demand for safe-haven assets. Going forward, investors await the United States monthly Retail Sales data for December, which will provide more cues about early rate cuts from the Federal Reserve (Fed). Investors have projected that consumer spending grew at a momentum of 0.4% against 0.3% increase in November. A decline in the Retail Sales data will allow Fed policymakers to support higher interest rates atleast for the first-half of this year.
EUR/USD technical analysis
EUR/USD is trading near the lower-end of the consolidation formed in a range of 1.0900-1.1000 on an hourly scale. The near-term appeal has turned bearish as the asset has slipped below the 200-period Exponential Moving Average (EMA), which oscillates around 1.0956.
The 14-period Relative Strength Index (RSI) has slipped into the bearish range of 20.00-40.00, which indicates an activation of a downside momentum.
Fresh downside will appear if the major currency pair drops below January 9 low of 1.0910. This could result in a downside move towards 22 November 2023 low at 1.0825 and 5 November 2023 high near 1.0756.
In the alternate case, an upside move above January 11 high at 1.1003 will allow it to recapture five-month high around 1.1120. A breach of the latter would clear pipeline for 19 July 2023 low at 1.1174.
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