(Eren Sengezer – FXStreet)
– EUR/USD has staged a rebound after having declined toward 0.9900.
– Markets price in a 70% probability of a 75 bps Fed hike in September.
– Hawkish comments from ECB officials could help the shared currency limit its losses.
After having posted weekly losses, EUR/USD has started the new week under modest bearish pressure and dropped toward 0.9900 before staging a rebound. The risk-averse market environment favors the greenback at the beginning of the new week but hawkish comments from European Central Bank (ECB) officials could limit the pair’s downside in the near term.
On Friday, FOMC Chairman Jerome Powell reiterated that they will have to keep the policy in restrictive territory for ‘some time’ to restore price stability. Powell refrained from hinting at the size of the September rate increase and added that they will continue to monitor the data before deciding on the next policy step. In turn, Wall Street’s main indexes suffered heavy losses and the US Dollar Index gathered bullish momentum, weighing heavily on EUR/USD.
Over the weekend, several ECB policymakers voiced their concerns over the euro’s depreciation and its potential negative impact on inflation. “Certainly we are monitoring the exchange rate,” ECB policymaker Olli Rehn said and noted that it already was a significant consideration in setting the monetary policy. Regarding the policy outlook, “even if we enter a recession, we have little choice but to continue the normalization path,” ECB Governing Council member Isabel Schnabel said. These comments seem to be helping the shared currency hold its ground for the time being.
There won’t be any high-impact data releases in the US economic docket and the risk perception could drive the market action. At the time of press, US stock index futures were down between 0.7% and 1.2%. In case US stocks fall sharply after the opening bell, the dollar could continue to gather strength in the second half of the day.
EUR/USD Technical Analysis
The near-term technical outlook shows that the bearish bias stays intact with the Relative Strength Index (RSI) indicator on the four-hour chart staying below 50. On the upside, the 20-period SMA forms interim resistance at 0.9960 ahead of the all-important parity level. Even if the pair rises above the latter, it could face stiff resistance at 1.0020, where the Fibonacci 23.6% retracement of the latest downtrend meets the 50-period SMA.
On the downside, 0.9920 (end-point of the downtrend) aligns as first support before 0.9900 (psychological level, multi-year lows) and 0.9850 (static level from July 2002).
EUR/USD: Range trading with downside risk
(Vasilis Tsaprounis – TopFX)
The common European currency is trading a bit higher from 0.9900 level in an in a risk aversion environment that strengthening the dollar.
In a choppy trading day the chairman of the Fed has been quite aggressive on Friday and has created increased concerns in the markets about the future and the risks facing the US economy , as a result of which we had a massive sell-off in the stock markets and dollar purchases as a safe haven currency.
The market acted as a ” sweeper ” and with a sharp rise to the 1,0080 level trapped many buyers , while simultaneously was executing stop-loss orders for those already holds sell positions in the pair with high leverage.
The basic pattern by which the pair moves recently has been confirmed once again , after a dip in the price followed by a strong reaction by rising above the level of 1/1 , which I have expected and mentioned several times in the previous week.
The two main causes weighing on the European currency that of the interest rate difference and the more difficult position the European economy finds itself in due to the Ukraine war remains and beyond the strong reactions we currently see it difficult to change the dynamic.
But already the voices from EU officials are beginning to appear strongly regarding the dissatisfaction of the low exchange rate but also the dangers that it lurks.
The basic scenario for buying the Euro in new market dips remain , with prices below the 0,9900 level the next target.