- EUR/USD prints the first daily losses in three, recently off intraday low.
- ECB’s Panetta, Fed’s Bostic showed discomfort in faster monetary policy normalization.
- US inflation expectations rose to 14-week high, Treasury yields underpin DXY rebound.
- Russia continues its invasion of Ukraine despite inconclusive peace talks, risk-aversion keeps bears hopeful.
EUR/USD begins March on a sober mood, pares intraday losses around 1.1200 heading into Tuesday’s European session. That said, the major currency pair prints 0.10% daily losses, the first in three days while portraying the USD rebound amid sluggish markets.
The market’s anxiety could be linked to the mixed updates over the Russian invasion of Ukraine, as well as cautious mood ahead of the key data/events.
Talking about the risks, the Kyiv-Moscow peace talks ended without any conclusion the previous day but have been kept on the table for further discussion. Though, Russia’s criticism of the Western sanctions and aggression of military invasion inside Kyiv suggests that the geopolitical risks have miles to go before easing, which in turn underpin the US dollar’s safe-haven demand.
On the other hand, firmer US 10-year Treasury yields, up two basis points (bps) to 1.86% at the latest., favor the US dollar to pare the latest losses. The bond yields might have taken clues from the latest US inflation expectations that rallied to 14-week top the previous day, per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data.
It should be noted, however, that downbeat probabilities of a 0.50% Fed rate hike in March, per CME’s FedWatch Tool, joins comments from Atlanta Fed President Raphael Bostic to test the US dollar buyers. Fed’s Bostic said on Monday, “Today I am in favor of a 25 bps move at March meeting." On the same line were comments from European Central Bank (ECB) policymaker Fabio Panetta who mentioned, "The ECB should take moderate and careful steps in adjusting policy, so as not to suffocate the as yet incomplete recovery," per Reuters.
Moving on, EUR/USD traders will keep their eyes on the geopolitical headlines for fresh impulse, as well as speeches from ECB President Christine Lagarde and US President Joe Biden. On the calendar, preliminary readings of Germany’s headlines inflation number, namely
Harmonized Index of Consumer Prices, will also be important to watch for additional directions.
Technical analysis
A horizontal area from late November 2021, around 1.1185-75, restricts the immediate downside of the EUR/USD pair ahead of the 2021 bottom surrounding 1.1120. Even so, recovery moves remain elusive until crossing a 13-day-old descending resistance line near 1.1300.