- EURUSD regains upside traction, as the US dollar remains on the back foot.
- Talks of a bigger than 25 bps ECB rate hike underpin the shared currency.
- Russia’s Nord Stream 1 pipeline reopens, the market mood remains buoyed.
EURUSD price is trading close to 1.0250, having found the renewed upside traction around the 1.0220 region earlier in the Asian session. The pair continues to benefit from the hawkish ECB expectations and the ongoing correction in the US dollar across the board.
The currency pair caught a fresh bid wave in Tuesday’s early European trading and rose over 100 pips to hit two-week highs of 1.0270. Although bulls failed to sustain at higher, as the price closed the day below the 1.0250 psychological barrier.
Also Read: ECB Preview: Is the time ripe for a 50 bps rate hike?
EURUSD price cheers US dollar correction
The US dollar is extending its corrective decline from two-decade highs for the fifth straight day on Wednesday. Repricing of tightening expectations from the Reserve Bank of Australia (RBA) and the ECB is weighing heavily on the buck. Additionally, easing fears over a 100 bps July Fed rate hike, as well as, ebbing recession risks have provided a relief to the markets, with many investors predicting a bottom could be in place. The upbeat market tone is also collaborating with the downside in the greenback when compared to its main competitors.
Eujropean Central Bank
ECB 50 bps rate hike on the table
The ECB story reported by Reuters on Tuesday suggested that the bank’s policymakers are set to discuss a 50 bps rate hike at the meeting. Therefore, a double-dose rate increase to control record-high inflation will not come as a surprise. Money markets are pricing in 40% odds on a half-point rate hike this week while wagering 97 bps of tightening by September after earlier baking in a one-percentage-point increase. The ECB news has offered the much-needed tailwind to the EUR/USD short-squeeze.
Russia’s Nord Stream 1 resumes
Russia's Nord Stream 1 pipeline will resume gas flows on schedule this week at reduced levels. The Nord Stream 1 carries more than one-third of Russia's natural gas exports to Europe and it was critical for the pipeline to restart after it went offline for 10 days on July 11 for annual maintenance. Markets were sceptical about Russia’s intentions, particularly after Russia’s Gazprom last month reduced the gas flow through Nord Stream 1 by 60%. The Nord Stream news helped EURUSD price with the additional legs in the ongoing recovery.
EU, China trade dialogue
EU-China trade negotiations held on Tuesday yielded few concrete results, with both sides saving for the commitment to keep talking. A Chinese state media report described the discussions as “pragmatic, candid and efficient”, and said the pair had agreed on “a series of results”. Reuters reported that progress was made on macroeconomic policy coordination, unblocking supply chains and reforming the world trading system. This could be seen as a positive for the euro in the coming months.
Eurozone Consumer Confidence eyed
Eurozone Consumer Confidence will drop later in the NA session, which will be interesting to watch ahead of Thursday’s ECB event. Ahead of that, the bloc’s Current Account data will be reported. The US Existing Home Sales will be also closely examined, as housing market slack has emerged as a critical problem for the US economy.
EURUSD price technical analysis
EURUSD price has paused well beneath the bearish 21-Daily Moving Average (DMA) at 1.0294. The renewed upswing once again targets the two-week highs of 1.0270.
Clearance of the 21 DMA will open doors for a rally towards the descending 50 DMA at 1.0467.
The 14-day Relative Strength Index (RSI) is flattening out while within the bearish territory, suggesting that bulls could face a hard time on the road to recovery.
On the flip side, the immediate support is seen at 1.0200 the figure, below which the 1.0150 psychological barrier will come into play.