Downside risks continue to persist, with the euro staying vulnerable to deeper losses in the coming days
The euro slipped to multi-day lows on Monday as the US dollar rallied across the board amid the recent hawkish message from Fed’s Powell that helped push US Treasury yields higher. The Federal Reserve governor opened the door to a faster pace of the tightening cycle, even considering the probability of a 50 bps rate hike in May amid the elevated inflation. Now, the probability of a 50 bps rate hike at the May meeting is at almost 65%.
Against this backdrop, the USD index rallied to nearly one-week highs just below the 99.00 figure before retreating in recent trading. As such, EURUSD bounced off local lows around 1.0960 and was last seen flirting with the 1.1000 figure as the selling pressure surrounding the common currency has eased somehow. However, downside risks continue to persist, with the euro staying vulnerable to deeper losses in the coming days as USD bulls remain in control in the absence of progress in the Russia-Ukraine peace dialogue.
Later in the day, the EURUSD pair could be affected by speeches by the ECB governor Lagarde and board members Panetta and Lane. In his latest comments, German finance minister Lindner said they can’t rely on the ECB to drive growth as it is fighting inflation. The government will deploy fiscal policy to avoid stagflation, he added. Earlier in the day, ECB Vice President Luis de Guindos noted that they can dismiss the possibility of stagflation.
Technically, both the short- and medium term outlook for the euro remains downbeat, with the pair clinging to long-term lows registered around 1.0800 earlier this month. A decisive break above the descending 100-DMA, today at 1.1280, could improve the short-term picture, but it looks like the common currency will stay below this barrier so far.