EUR/USD snaps three-day rebound near 1.0000 on hawkish Fed bets, ECB’s pessimism
- EUR/USD takes offers to refresh intraday low, down for the first time in four.
- US dollar cheers hawkish Fed bets, sluggish session and mixed comments from US President Biden to remain firmer.
- ECB policymakers favor further rate hikes but suggest economic pain ahead.
- Second-tier headlines surrounding China entertain traders amid an off in Japan and the UK.
EUR/USD remains on the back foot around 0.9995 while refreshing the intraday low, as well as posting the first daily loss in four, during early Monday. The major currency pair’s latest weakness could be linked to the US dollar’s firmer moves ahead of the key monetary policy meetings, especially amid hawkish Fed bets and a light calendar. However, holidays in Japan and the UK join a light calendar for the day to restrict immediate moves.
Among the negatives are the firmer US data and the CME’s FedWatch Tool which suggests more odds of the hawkish Fed action. On the same line could be the People’s Bank of China’s (PBOC) latest reverse repo cut of 10 basis points (bps).
At home, “The European Central Bank (ECB) could raise interest rates into next year, causing pain for consumers as it tries to depress demand that is now increasingly adding to sky-high inflation,” ECB Chief Economist Philip Lane said on Saturday per Reuters. On the same line, ECB Governing Council member and German central bank head Joachim Nagel stated that the ECB rates are far away from levels that are suitable for inflation. The policymaker also added that he doesn’t see a hard recession.
On Friday, the University of Michigan's preliminary readings of Consumer Sentiment for September came in at 59.5, up from 58.6 in the prior month while easing below 60.0 market forecasts. With the firmer US data, the odds of the Fed’s 75 basis points rate hike (bps) rose to nearly 80%, around 82% by the press time, while the market’s expectations of a full one percentage increase in the Fed rate rose to 18%.
Recently, US President Biden said, “I'm more optimistic than I have been in a long time.” The national leader also stated that they are going to get control of inflation. On the same line are the covid updates from China as it unlocks Dalian and Chengdu cities while witnessing zero coronavirus cases in Beijing and one, versus zero the previous day, outside Shanghai’s quarantine zone. However, US President Biden’s readiness to back Taiwan in case China attacks Taipei and the hawkish hopes for the Fed seem to weigh on the steel price ahead of the key monetary policy announcements.
Amid these plays, the S&P 500 Futures print mild losses while tracking Wall Street’s Friday close. It should be noted that the off in Japan restricts the bond moves in Asia but the yields are sturdy near the multi-day high amid recession fears and hawkish Fed expectations.
Looking forward, the absence of Japan and the UK will join the light calendar to restrict intraday moves of the EUR/USD pair. However, the bears are likely to retake control as the Fed hawks seem to have more strength compared to their ECB counterparts. Also keeping the pair sellers hopeful is the energy crisis in the bloc. Even so, the Fed’s 0.75% rate hike is already given and priced in, which in turn highlights the economic forecasts and Fed Chairman Jerome Powell’s speech as the key catalysts to watch for fresh impulse.
Also read: EUR/USD Weekly Forecast: Peak Fed hawkishness? Not so fast, determined message to send pair plunging
Technical analysis
Unless declining back below 21-DMA support near 0.9990, the EUR/USD prices are likely to aim for the 50-DMA resistance near 1.0100. However, the upper line of a falling wedge bullish chart pattern, established in late June, around 1.0150, appears a strong upside hurdle.