- EUR/USD retreated slightly below 1.0850 after posting small gains on Monday.
- The cautious market mood could make it difficult for the pair to gain traction.
- ISM Services PMI for February will be featured in the US economic docket.
EUR/USD closed marginally higher on Monday as the negative shift seen in risk sentiment made it difficult for the pair to gather bullish momentum during the American trading hours. The pair edges lower early Tuesday as the mood continues to sour.
While speaking at the National People’s Congress (NPC) annual meeting on Tuesday, China’s Premier Li Qiang noted that the foundation of the economic recovery in China was not solid yet. Hong Kong Hang Seng Index is down nearly 3% on Tuesday and US stock index futures lose between 0.2% and 0.55%, reflecting the risk-averse market atmosphere.
Later in the day, the ISM Services PMI for February will be featured in the US economic docket. Markets expect the headline PMI to come in at 53, down slightly from 53.4 in January. In case this data arrives above 50, investors could react to the inflation component of the survey, the Prices Paid Index. In January, this index climbed to 64 from 56.7 in December, highlighting a pickup in the service sector’s input cost inflation. Another leg higher in the inflation component could provide a boost to the US Dollar (USD) with the immediate reaction.
Market participants will also pay close attention to the action in US stock markets. A bearish opening in Wall Street could help the USD capitalize on safe-haven demand.
Federal Reserve Chairman Jerome Powell’s two-day testimony will start on Wednesday.
EUR/USD Technical Analysis
EUR/USD reversed its direction after testing 1.0860 (Fibonacci 38.2% retracement of the latest downtrend), confirming this level as strong resistance. On the downside, 1.0835 (200-period Simple Moving Average (SMA) on the 4-hour chart) aligns as first support before 1.0800 (psychological level, Fibonacci 23.6% retracement) and 1.0760 (static level).
In case EUR/USD manages to stabilize above 1.0860, 1.0900-1.0910 (psychological level, Fibonacci 50% retracement) and 1.0940 (static level) could be seen as next resistance levels.