Bulls sidelined amid Ukraine crisis; NATO summit, focus on EU/US MIPs

  • EUR/USD remains depressed near the weekly low amid the emergence of some USD buying.
  • The Russian-Ukrainian crisis and the Fed’s hawkish outlook acted as a tailwind for the safe-haven USD.
  • Investors are watching Eurozone/US PMIs, EU leaders’ summit and NATO meeting for further momentum.

EUR/USD struggled to capitalize on yesterday’s modest rebound from the 1.0960 area and encountered fresh supply on Wednesday amid the emergence of some US dollar buying. So far, tensions in Ukraine have shown no signs of easing. Apart from that, the lack of progress in the Russian-Ukrainian peace talks has kept investors on their toes. Market sentiment was further weighed down by concerns over soaring oil prices, which continue to put upward pressure on already high inflation due to the supply chain bottleneck. This, in turn, weighed on global risk sentiment and drove some safe-haven flows into the greenback.

The dollar was further bolstered by hawkish comments from influential FOMC officials signaling that they are ready to take more aggressive action to combat stubbornly high inflation. In fact, Fed Chairman Jerome Powell, as well as San Francisco Fed President Mary Daly and Cleveland Fed President Loretta Mester, signaled that a bigger upside was in sight during of the central bank’s May meeting. Markets were quick to react and began pricing in the possibility of a 50 basis point rate hike in the May and June meetings, followed by a 25 basis point hike in the remaining meetings. of 2022. This was seen as another factor that continued to support the US Dollar.

The common currency was further put under pressure by the disappointing release of the eurozone consumer confidence index. According to the flash estimate published by the European Commission, the gauge fell to -18.7 in March against -8.8 the previous month. That said, the global flight to safety caused US Treasury yields to pull back modestly and prevented US Dollar bulls from placing aggressive bets. This, in turn, helped limit further losses and helped the pair find support near the weekly low. The attempted rally, however, lacked follow-on buys and was sold in Thursday’s Asian session.

The pair traded in negative territory for the fourth day of the previous five, with the focus remaining on new developments surrounding the Russia-Ukraine saga. US President Joe Biden has arrived in Brussels for a series of meetings on the war in Ukraine. Biden will meet with NATO and European leaders are expected to announce a set of sanctions targeting Russian politicians and oligarchs. The upcoming geopolitical headlines would play a key role in influencing the risk sentiment of the broader market and the common currency, which, in turn, should provide momentum to the majors. Other than that, traders will take inspiration from the flash version of the Eurozone PMI prints.

The US economic record features the release of durable goods orders and the usual weekly initial jobless claims and flash PMI data later in the first North American session. This, along with US bond yields, will drive demand for USD and produce significant trading opportunities around the pair.

Technical outlook

From a technical standpoint, the pair has so far managed to defend the 23.6% Fibonacci level from the recent drop near the 1.1500 mark. Said support, around the 1.0960 region, should act as a pivot point which, if broken decisively, should pave the way for further losses. The pair could then become vulnerable to accelerate the slide towards the round number of 1.0900. Some follow-up selling would expose the year-to-date low around the 1.0800 mark, with intermediate support near the 1.0860-1.0850 region.

On the other hand, the 1.1045 area now seems to have turned into immediate resistance and is closely followed by the 38.2% Fibo. level, around the 1.1070 area. Sustained strength beyond that could push spot prices back towards the 1.1100 mark en route to last week’s high around the 1.1135-1.1140 region. The latter is close to 50% Fibo. level, which, if decisively resolved, would be seen as a new trigger for bullish traders and pave the way for further gains. The pair could then aim to break above the 1.1200 mark and test the next relevant hurdle around the 1.1230 region, or the 61.8% Fibo. level.

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