Forex News

EUR/USD Rebounds as US Dollar Fades Recovery, Focus on ECB’s Lagarde and PMIs

Published by
Nonhlanhla P Dube
  • The EUR/USD pair consolidated its intraday losses around 1.0980 as traders sought more clues to extend the previous day’s fall amid a sluggish morning in Europe.
  • The US Dollar’s failure to defend the corrective bounce from the one-year low amid doubts about the US economic recovery due to the deadlock over the government debt ceiling extension cheered the Euro pair.
  • The recently hawkish comments from the European Central Bank (ECB) officials added strength to the Euro pair’s rebound. Currently, US Democrats and Republicans are head-to-head over whether to extend the debt ceiling, currently around the record high, or not.

On Monday, the EUR/USD pair consolidated its intraday losses around 1.0980 as traders sought more clues to extend the previous day’s fall amid a sluggish morning in Europe. The pair cheered the US Dollar’s failure to defend the corrective bounce from the one-year low amid doubts about the US economic recovery due to the deadlock over the government debt ceiling extension. Adding strength to the Euro pair’s rebound could be the recently hawkish comments from the European Central Bank (ECB) officials.

Currently, US Democrats and Republicans are head-to-head over whether to extend the debt ceiling, currently around the record high, or not. However, ECB President Christine Lagarde showed “huge confidence” that the US would not allow the country to default on its debt. This is a positive indication for the Euro pair’s recovery.

Moreover, the market’s pricing of the ECB’s 0.25% rate hike and policymakers’ resistance to utter policy pivot or rate cut, except for Governing Council member Mario Centeno, also keeps the EUR/USD buyers hopeful. Additionally, hopes that the bloc will be able to avoid recession adds strength to the Euro pair’s recovery moves.

However, the recently firmer US data and hawkish Fed talks challenge the EUR/USD bulls amid a sluggish start to the key week comprising the preliminary readings of PMIs for April. On Friday, a wider-than-expected fall in US Retail Sales failed to supersede upbeat figures from the US Industrial Production and University of Michigan’s (UoM) Consumer Confidence Index and allowed the US Dollar to rebound. Not only the data but hawkish comments from the Fed policymakers also enabled the greenback to pare the previous losses.

Amid these plays, the CME’s FedWatch tool suggests an almost certain case of the US central bank’s 0.25% rate hike in May. However, the interest rate futures also tame the odds of the rate cuts in late 2023 and support the longer halt to the rate hike trajectory after the upcoming rate lift.

Against this backdrop, the S&P 500 Futures print 0.20% intraday gains as it reverses the previous day’s pullback from the highest levels since early February around 4,172. However, the US 10-year and two-year Treasury bond yields pare the previous week’s 3.0% gains with minor losses around 3.52%% and 4.10% respectively.

ECB President Lagarde is scheduled to speak one more time in the day and can entertain EUR/USD traders. However, major attention will be given to this week’s PMIs to reconfirm the economic recovery hopes, as well as prod the hawkish Fed bets and the latest falling prices.

In terms of technical analysis, the EUR/USD pair’s latest rebound takes place from a two-week-old previous resistance surrounding 1.0970, backed by upbeat oscillators on the shorter timeframes. However, the quote’s previous decline below the horizontal area comprising multiple levels marked since early February, as well as a one-week-old ascending trend line, near 1.1030-40, keeps bears hopeful.

Nonhlanhla P Dube

Nonhlanhla P Dube is a senior news reporter at Rateweb. Nonhlanhla is a student of International Relations at the University of South Africa. She reports primarily on personal finance and economics. You can contact her directly by email at nonhlanhla@rateweb.co.za

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Published by
Nonhlanhla P Dube

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