- EUR/USD matched the December low near 1.0720.
- Investors continued to reprice the timing of the first rate cut by the Fed.
- Strong NFP and Chair Powell reinforced the tighter-for-longer narrative.
In two consecutive sessions, EUR/USD broke below the key 200-day SMA (1.0836) and the provisional 100-day SMA (1.0783), reaching levels last seen in early December near 1.0720 on Monday.
On the opposite side of the equation, the USD Index (DXY) saw its upside bias strongly reinvigorated as investors kept assessing another firm monthly job creation, as per Friday’s Nonfarm Payrolls (+353K), along with hawkish remarks from Chief Powell at his interview on CBS released over the weekend.
On the latter, Powell said the Federal Reserve is expected to keep a cautious approach when it comes to interest rate decisions. He reiterated that further confidence is needed before starting to reduce interest rates.
Furthermore, Powell emphasized that the Fed should wait for data confirmation that inflation is moving down to 2% in a sustainable way, while the economy’s current strength reduces the risk of recession. The Fed is monitoring risks to price stability and maximum employment mandates and may consider weakening job growth as a reason to accelerate rate cuts. He also noted the importance of balancing the risk of moving too soon or too late, focusing on the real economy, and doing the right thing for the economy and American people over the medium and long term.
In light of the ongoing debate regarding the potential timing of an interest rate cut by the Fed, the probability of such a scenario in March was drastically reduced to barely 15%, rising to around 55% in May and up to nearly 40% in June, according to CME Group’s FedWatch Tool.
The strong climb of the dollar was also underpinned by the intense rebound in US yields, which added to the post-NFP gains seen on Friday across different time frames.
EUR/USD daily chart
EUR/USD short-term technical outlook
A deeper pullback might see EUR/USD retest the 2024 low of 1.0723 (February 5), an area coincident with the December 2023 low of 1.0723 (December 8). The breach of this level should not get major support until the minor November 2023 low of 1.0516 (November 1) ahead of the weekly low of 1.0495 (October 13, 2023), which comes before the 2023 low of 1.0448 (October 3) and the round level of 1.0400.
The pair’s outlook is expected to become negative if it routinely clears the crucial 200-day SMA (1.0836).
On the upside, spot has to break above the weekly high of 1.0932 (January 24) to reach the next weekly top of 1.0998 (January 11), which would strengthen the psychological 1.1000 level. Further rises from here might pave the way for a potential effort to reach the December peak of 1.1139 (December 28).
The four-hour chart indicates a moderate negative trend for the time being. South of 1.0723 aligns 1.0656. Bullish attempts, on the other side, may aim to test the 55- SMA at 1.0838 ahead of the 100-SMA at 1.0866, all ahead of 1.0897. The MACD stays negative, but the RSI manages to bounce to the 32 zone.
