Violation of key support makes the downside more vulnerable, but Fed and ECB likely to define near-term direction
Near-term structure weakens as pullback from new 2023 high (1.1095) extends into fourth consecutive day and probes below pivotal supports at 1.0968/59 (20DMA / Fibo 23.6% of 1.0516/1.1095).
Extension of Monday’s nearly 0.5% drop below the floor of recent congestion suggests that larger bulls are losing traction and looking for deeper pullback, however, such scenario still requires confirmation on close below 1.0960 zone.
Extended pullback would still mark a healthy correction as long as the price stays above next key Fibo level at 1.0874 (38.2% retracement of 1.0516/1.1095), with solid supports at 1.0941 (daily Kijun-sen) and 1.0909 (Apr 17 trough), expected to obstruct fresh near-term bears.
Daily studies are rather mixed as Tenkan / Kijun-sen are still in bullish configuration, but rising negative momentum conflicts and keeps the downside vulnerable.
The single currency came under pressure as Eurozone inflation rose to 7% in April from 6.9% previous month, but core CPI unexpectedly eased to 7.3% from 7.5%, adding to argument that lower underlying inflation would prompt the European Central Bank to opt for smaller rate hike in its policy meeting on Thursday, against existing bets that the central bank may get more aggressive and raise its interest rates by 50 basis points.
Traders await key events on Wednesday and Thursday (Fed and ECB policy meetings) to get clearer signals, as the Fed is widely expected to deliver another 25 basis points hike tomorrow, but also to signal a pause in tightening cycle, which will give time to policymakers to estimate the impact of high borrowing cost to inflation, as well as to the economy, additionally weighed by growing tensions in the US banking sector.
On the other hand, the ECB is likely to extend its tightening campaign after a record 350 basis points hikes in past one year, as inflation is still too high and acceleration in wage growth adds to inflationary pressures.
The only one thing is not clear at the moment – the size of hike, as ECB’s doves and hawks argue about 25 and 50 basis points hikes.
This implies that the Euro is likely to remain supported by diverging policy views between the ECB and Fed in coming months and the larger uptrend could extend after current consolidation / correction.
Res: 1.1000; 1.1044; 1.1075; 1.1095
Sup: 1.0930; 1.0909; 1.0874; 1.0831