EUR/USD Outlook: Holds above 1.0800 pivotal support, Eurozone/US PMIs in focus

• EUR/USD struggled to preserve the overnight gains to a two-week high amid resurgent USD demand.
• The Fed’s hawkish outlook, elevated US bond yields, and the risk-off impulse underpinned the buck.
• Investors now look forward to the flash Eurozone/US PMI prints for some meaningful trading impetus.

The EUR/USD pair witnessed good two-way price moves on Thursday and finally settled near the lower end of its daily trading range. The shared currency drew some support from hawkish comments by some ECB policymakers, which, along with some intraday US dollar selling, lifted the pair to a two-week high. ECB Vice President Luis de Guindos said in an interview that a rate hike is possible in the second half of the year, though the timing will depend on the economic projections. Adding to this, ECB Governing Council member Pierre Wunsch suggested a probable interest rate hike in July and anticipated that rates could be positive as soon as this year.

Adding to this, Joachim Nagel, President of the Deutsche Bundesbank, noted that the ECB could raise interest rates at the start of the third quarter. The markets were quick to price in a more than 20 bps rise in July and nearly 80 bps of tightening by year-end. ECB President Christine Lagarde, however, said that the central bank might need to cut its growth outlook further amid concerns about the fallout from Russia's invasion of Ukraine. In contrast, Fed Chair Jerome Powell all but confirmed a 50 bps rate hike at the upcoming policy meeting on May 3-4 and hinted at consecutive increases this year. The divergence in the ECB-Fed policy stance acted as a headwind for the pair.

The prospects for a more aggressive policy tightening by the Fed lifted the US Treasury bond yields back closer to the multi-year peak. The risk-off impulse revived demand for the safe-haven USD and led to the pair's sharp decline of over 100 pips. The downfall, however, lacked follow-through, and the pair was seen oscillating in a narrow trading band through the Asian session on Friday. Market participants now seem to await the release of the flash PMI prints from the Eurozone and the US before placing fresh bets. Traders will further take cues from ECB President Christine Lagarde's appearance and the USD price dynamics for some short-term opportunities.

Technical outlook

From a technical perspective, the pair’s inability to capitalize on this week’s rebound from the vicinity of the YTD low and the overnight downfall favours bearish traders. It will still be prudent to wait for sustained weakness below the 1.0800 mark before positioning for any further depreciating move. The following relevant support is pegged near the post-ECB low, around the 1.0760-1.0755 region, below which the pair is likely to accelerate the downward trajectory towards the 1.0700 round figure.

On the flip side, the 1.0890-1.0900 area seems to be an immediate resistance ahead of the previous day’s high, around the 1.0935 zone. Some follow-through buying will suggest that the pair has formed a near-term bottom and pave the way for a move towards reclaiming the 1.1000 psychological mark. The momentum could further extend towards the 1.1025-1.1030 region en-route the next relevant hurdle around the 1.1085 level.