EUR/USD flat-lines below one-week high, looks to US CPI on Tuesday for fresh impetus

EUR/USD retreats after climbing to over a one-week high, around the 1.0800 mark on Monday.
ECB rate cut bets undermine the shared currency and exert pressure amid reviving USD demand.
The Fed rate cut uncertainty might cap gains for the USD and help limit deeper losses for the pair.

The EUR/USD pair loses traction following an early uptick to the 1.0800 mark, or over a one-week high on Monday and drops to a fresh daily low during the first half of the European session. Spot prices, however, recover a few pips in the last hour and remain at the mercy of the US Dollar (USD) price dynamics. Growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer continues to act as a tailwind for the Greenback. That said, the uncertainty over the likely timing and pace of Fed rate cuts in 2024 hold back the USD bulls from placing aggressive bets.

Apart from this, the underlying bullish sentiment across the global equity markets turns out to be another factor capping gains for the safe-haven buck and acts as a tailwind for the EUR/USD pair. The upside for the shared currency, meanwhile, remains capped in the wake of rising bets that the European Central Bank (ECB) will start cutting interest rates at the start of the second quarter. Investors might also prefer to move to the sidelines and wait for the release of the latest US consumer inflation figures on Tuesday before positioning for the next leg of a directional move for the currency pair.

Daily Digest Market Movers: Stalls the intraday pullback amid Fed rate cut uncertainty

Expectations that the Federal Reserve will keep rates higher for longer helps revive the US Dollar demand and prompt some intraday selling around the EUR/USD pair on the first day of a new week.
The incoming robust US macro data and hawkish remarks by a slew of influential FOMC members forced investors to scale back their expectations for early and steep interest rate cuts this year.
The current market pricing indicates that the Fed could deliver four, or five at the most, 25 basis points rate cuts in 2024 as compared to seven such moves anticipated at the end of the last year.
Dallas Fed President Lorie Logan said on Friday that she is in no rush to cut interest rates and wants more data to confirm the tremendous progress on bringing down inflation is durable.
Separately, Atlanta Fed President Raphael Bostic noted that inflation has been too high for too long and the US economy wants to avoid a new spike on its path back to the pre-pandemic strength.
The yield on the benchmark 10-year US government bond holds comfortably above the 4.0% mark and continue to act as a tailwind for the Buck, which, in turn, caps the upside for the currency pair.
The recent mixed signals from European Central Bank officials, over the prospects for interest rate cuts, further hold back bulls from placing aggressive bets around the shared currency.
Several ECB officials have been trying hard to temper expectations for early policy easing, though the markets are pricing in the possibility of the first-rate cut at the start of the second quarter.
The bets were reaffirmed by a fall in German inflation, which decelerated to the 2.9% YoY rate in January from the 3.7% in the previous month and validated the view that price pressures are easing.
Adding to this, ECB Governing Council member Fabio Panetta said on Saturday that the rate cut moment is fast approaching, and that timely and gradual steps could help to reduce ensuing volatility.
Traders might also opt to move to the sidelines ahead of the US consumer inflation figures on Tuesday, which might influence the Fed's future policy decision and provide some meaningful impetus.

Technical Analysis: Needs to find acceptance above 1.0800 for bulls to seize near-term control

From a technical perspective, any subsequent move beyond the 1.0800 mark is likely to meet with a fresh supply and remain capped near the 1.0830 confluence hurdle. The said area comprises the very important 200-day Simple Moving Average (SMA) and a one-month-old descending trend line, which, in turn, should act as a key pivotal point. A sustained move beyond might shift the near-term bias in favor of bullish traders and lift the EUR/USD pair to the 1.0900 round figure. The momentum could get extended further towards the 1.0930-1.0935 intermediate resistance en route to the 1.0970-1.0975 area and the 1.1000 psychological mark.

On the flip side, weakness below the Asian session low, around the 1.0775-1.0770 region, is likely to find some support near the 1.0740 area ahead of the 1.0725-1.0720 area, or a multi-month low touched last week. This is closely followed by the 1.0700 mark, which if broken decisively will be seen as a fresh trigger for bearish traders and make the EUR/USD pair vulnerable. Spot prices might then accelerate the slide further towards the 1.0665-1.0660 support before eventually dropping to the 1.0620-1.0615 region and the 1.0600 round figure.

Euro price today

The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the New Zealand Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		0.17%	0.03%	0.04%	0.05%	-0.09%	0.34%	-0.08%
EUR	-0.16%		-0.13%	-0.12%	-0.12%	-0.26%	0.18%	-0.25%
GBP	-0.04%	0.13%		0.00%	0.01%	-0.14%	0.30%	-0.13%
CAD	-0.02%	0.15%	0.01%		0.03%	-0.11%	0.32%	-0.10%
AUD	-0.06%	0.11%	-0.03%	-0.02%		-0.15%	0.29%	-0.14%
JPY	0.10%	0.27%	0.17%	0.14%	0.16%		0.44%	0.02%
NZD	-0.33%	-0.17%	-0.31%	-0.30%	-0.29%	-0.43%		-0.42%
CHF	0.07%	0.23%	0.09%	0.11%	0.12%	-0.03%	0.41%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

ECB FAQs

What is the ECB and how does it influence the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region.
The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

What is Quantitative Easing (QE) and how does it affect the Euro?

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro.
QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

What is Quantitative tightening (QT) and how does it affect the Euro?

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.

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