EUR/USD bears attack 1.0510 support as recession woes propel US Dollar ahead of Fed vs. ECB play
- EUR/USD holds lower ground after welcoming bears on Friday.
- Economic slowdown fears, EU-Russia tensions join hawkish Fed bets to fuel US Dollar.
- Light calendar, cautious mood ahead of FOMC, ECB meetings restrict trading moves.
EUR/USD grinds lower towards 1.0500, printing mild losses to extend Friday’s downward trajectory, as traders await this week’s bumper events during early Monday. Among them, the US Consumer Price Index (CPI) for November and monetary policy meetings of the US Federal Reserve, as well as the European Central Bank (ECB) gain major attention.
In addition to the pre-event anxiety, fears of economic slowdown in the bloc, as well as abroad, also weigh on the EUR/USD prices, due to the US Dollar’s safe-haven demand.
Late Sunday, US Treasury Secretary Janet Yellen said, “There's a risk of a recession, but it certainly isn't something that is necessary to bring inflation down.” Further, the economic slowdown fears could be linked to the yield curve inversion as the US 10-year Treasury bond yields and the two-year bond coupons portray a negative difference.
On the same line, the European Central Bank (ECB) Governing Council member and French central bank governor Francois Villeroy de Galhau warned on Friday, “a temporary recession cannot be excluded.” It’s worth noting that the bloc’s tussle with Russia and the recent oil price cap on Moscow’s energy exports increase the odds of witnessing an economic slowdown in the region. Adding to the pessimism are the latest readings of the November month activity numbers for the Eurozone, which were downwardly revised in the last week.
It should be noted that the ECB policymakers appeared less hawkish than their Fed counterparts and hence the market bets on the 0.50% Fed rate hike have been on the rise of late. Alternatively, a Reuters poll mentioned that the ECB will take its deposit rate up by 50 basis points next week to 2.00%, despite the eurozone economy almost certainly being in recession, as it battles inflation running at five times its target.
Amid these plays, the markets witness a sluggish start to the key week with mildly offered S&P 500 Futures and inactive Treasury yields.
Moving on, Tuesday’s US Consumer Price Index (CPI) and Wednesday’s Federal Open Market Committee (FOMC) meeting will be crucial for the EUR/USD pair traders ahead of Thursday’s ECB monetary policy announcements. Overall, the pair bulls are likely running out of steam ahead of the key data/events.
Technical analysis
A five-week-old ascending trend line, around 1.0510 by the press time, restricts the immediate downside of the EUR/USD pair, a break of which could quickly drag the quote towards another support line stretched from November 10, close to 1.0480. Overall, the trend remains bullish unless the quote stays beyond the 200-SMA level surrounding 1.0250.