EURUSD Analysis: Bulls seem hesitant

EURUSD Analysis: Bulls seem hesitant, remain at the mercy of USD price dynamics

(Haresh Menghani – FXStreet)

– EUR/USD edges higher on Monday amid a modest USD downtick, though lacks follow-through.

– Retreating US bond yields, along with the risk-on impulse, weighs on the safe-haven greenback.

– Aggressive Fed rate hike bets act as a tailwind for the buck and seem to cap gains for the major.

The EUR/USD pair attracts some buying on the first day of a new week amid a modest US dollar weakness, though the uptick lacks bullish conviction. A modest pullback in the US Treasury bond yields, along with the risk-on impulse, turn out to be key factors undermining the safe-haven greenback. The risk sentiment gets a boost from reports that the UK government is preparing for a major U-turn on planned tax cuts. That said, growing worries about a deeper global economic downturn should keep a lid on any optimistic move in the markets. Investors remain concerned about the potential economic headwinds stemming from rapidly rising borrowing costs and geopolitical risk. Furthermore, China’s zero COVID-19 policy has been fueling recession fears.

Apart from this, the prospects for a more aggressive policy tightening by the Fed continue to act as a tailwind for the greenback and contribute to capping the EUR/USD pair. The markets seem convinced that the Fed will continue to hike interest rates at a faster pace to curb inflation and are pricing in a nearly 100% chance of another supersized 75 bps increase in November. The bets were reaffirmed by the stronger US CPI report released last week and the recent hawkish comments by several Fed officials. This, in turn, favours the USD bulls and suggests that the path of least resistance for the major is to the downside. Traders now look to the US economic docket, featuring the release of the Empire State Manufacturing Index for a fresh impetus.

The US macro data, along with the US bond yields and the broader risk sentiment, will influence the USD price dynamics and provide some impetus to the EUR/USD pair. The fundamental backdrop, however, remains tilted firmly in favour of bearish traders. Hence, any intraday positive move might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

EUR/USD Technical Outlook

From a technical perspective, the 0.9775 zone could act as an immediate hurdle ahead of the 0.9800-0.9810 region. This is followed by the 0.9830 resistance, above which a bout of a short-covering move could lift the EUR/USD pair to the 0.9900 round-figure mark. Some follow-through buying should pave the way for additional gains, though any meaningful upside is likely to remain capped near the parity mark. The latter should act as a pivotal point, which if cleared decisively will suggest that spot prices have formed a near-term bottom.

On the flip side, the 0.9700 round figure is likely to protect the immediate downside ahead of the last week’s swing low, around the 0.9630 region. This is closely followed by the 0.9600 mark, below which the EUR/USD pair might turn vulnerable to retest over a two-decade low, around the 0.9535 region touched last month.