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- EUR/USD jumps to a fresh multi-month high amid sustained USD selling on Monday.
- Diminishing odds for more aggressive Fed rate hikes continue to weigh on the buck.
- The golden cross supports prospects for a further appreciating move.
The EUR/USD pair gained strong follow-through traction for the second day on Monday and shot to a seven-month high amid sustained US dollar selling. The US monthly jobs report released last Friday pointed to the slowing in wage growth and that inflationary pressures could weaken. Furthermore, the US ISM Services PMI dropped into contraction territory in December and hit the worst level since 2009. The data suggested that the effects of the Fed’s aggressive policy tightening last year are already being felt in the economy and lifted bets for smaller rate hikes in coming months. This led to a further decline in the US Treasury bond yields and continued weighing on the buck.
Apart from this, the latest optimism over China’s biggest pivot away from its strict zero-COVID policy undermined the safe-haven greenback and provided an additional lift to the EUR/USD pair. China opened its sea and land border crossings with Hong Kong over the weekend for the first time in three years. Investors, however, remain worried that the massive flow of Chinese travellers may cause another surge in COVID infections. Apart from this, the protracted Russia-Ukraine war has fueled concerns about a deeper global economic downturn and kept a lid on optimism. This was evident from the overnight slide in the US equity markets and helped limit losses for the USD.
Nevertheless, the EUR/USD pair finally settled with substantial intraday gains, just a few pips below the multi-month peak, and held steady above the 1.0700 mark through the Asian session on Tuesday. Without any major market-moving economic releases, the USD price dynamics will continue to play a vital role in influencing the major. Hence, the focus remains glued to Fed Chair Jerome Powell’s speech. Investors will look for fresh clues about the pace of Fed rate hikes at the upcoming meetings. This will drive the USD demand and produce short-term opportunities around the pair ahead of the latest US consumer inflation figures, due for release on Thursday.
Technical Outlook
From a technical perspective, a sustained move and acceptance above the 1.0700 mark could be a fresh trigger for bullish traders. Furthermore, the occurrence of the golden cross (50-day SMA moving above 200-day SMA) supports prospects for a further near-term appreciating move. Some follow-through buying beyond the overnight swing high, around the 1.0760 area, will reaffirm the positive outlook and allow the EUR/USD pair to reclaim the 1.0800 round figure. The momentum could extend further towards the next relevant resistance near the 1.0855 zone.
On the flip side, the 1.0700 mark could now protect the immediate downside ahead of the 1.0650-1.0645 region. Failure to defend the said support levels might prompt technical selling and make the EUR/USD pair vulnerable to weaken further below the 1.0600 mark and test the 1.0540-1.0535 support zone. This is followed by the 1.0500 psychological mark and the monthly low, around the 1.0480 region, which, if broken decisively, will shift the near-term bias in favour of bearish traders.
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