EUR/USD Trapped As Fed Speakers Set the Scene For Rate Hikes

The EUR/USD pair loses 0.18% on Tuesday during the US trading session, meanwhile, Fed policymakers seem to set the scene for 50-bps increases as they also eye Wednesday’s CPI data.

The Euro continues to be unable to recover above the 1.0600 threshold. The shared currency has remained trapped around 1.0500 for the third successive session. The EUR/USD pair’s performance reflects the described status amid mixed market sentiment across the financial markets, including European equities which are rising while US stocks fluctuate.

Several factors such as Fed’s policy tightening while doubts and concerns about missing “soft landing” accelerate lest fed’s measures should enflame recession. Simultaneously, China’s zero-tolerance coronavirus restrictions as well as the Ukraine-Russia war add to the said concerns.

News reports from China talked about export growth slowing to the weakest level in two years as Beijing’s Covid-19 restrictions halted factory production and altered domestic demand. The Russo-Ukrainian conflict looks at a dead end, with no progress toward peace talks, as Russian President Vladimir Putin is expected to be preparing for a prolonged conflict.

The European Central Bank’s member Joachim Nagel said that the bank should hike rates in July if incoming data suggests that inflation is too high. ECB’s Francois Villeroy stated that the ECB would act to ensure price stability and reiterated that governments must tackle debt as rates rise.

Fed policymakers clearly set the scene for a series of three 50-bps increases, counting the May’s FOMC meeting, according to Fed’s John Williams, Barkin, and Mester. Mester added that if inflation does not get under control, the US central bank will need to go beyond neutral, adding that policymakers would not downplay the likelihood of 75-bps hikes forever.

The US economic docket would feature additional Fed speakers, including Neil Kashkari and Christopher Waller. Data-wise, US inflation will be unveiled on Wednesday, followed by prices paid by producers on Thursday and Consumer Sentiment on Friday.

Technically, the EUR/USD remains neutral-downward biased, unable to break beyond the 1.0500-1.0640 area boundaries. Even though the MACD-line is about to cross over the signal line, a leg-up would be capped by a confluence of resistance levels lying around 1.0600-40 area.

The EUR/USD first resistance would be the 1.0600 figure. Break above would expose the 1.0640, top of the range above-mentioned, followed by a downslope trendline that passes near 1.0660-70. On the downside, the EUR/USD first support would be 1.0500. Latter’s breach would expose April’s 28 daily low at 1.0471, followed by January’s 2017 cycle lows at around 1.0340.