- EUR/USD remains depressed for the second consecutive day amid strong yields, renews three-month low of late.
- ECB policymakers defend hawkish bias but lack economic support to bolster Euro.
- Fed Chair Jerome Powell renews calls for 50 bps rate hike and propel yields, US Dollar.
- Eurozone Retail Sales, US ADP Employment Change act as additional catalysts to watch clear directions.
EUR/USD renews a two-month low near 1.0525 as it extends the previous day’s south-run amid the widest yield curve inversion since 1981. It’s worth noting that the Euro pair slumped the most in more than a month the previous day on Federal Reserve (Fed) Jerome Powell’s hawkish rhetoric but a lack of major data/events seem to probe the bears of late, despite keeping them in the driver’s seat during early Wednesday.
On Tuesday, Fed Chair Powell surprised traders by showing readiness for more rate hikes and bolstered the bets of a 50 bps Fed rate hike in March during the Semi-Annual Testimony before the US Congress. The policymaker propelled the “higher for longer” Fed rate expectations and bolstered the US Treasury bond yields while weighing on the equities. His comments propelled the yields and the US Dollar.
It’s worth noting that the policymakers at the European Central Bank (ECB) tried to defend their hawkish stance during public appearances but could not save the EUR/USD from renewing a two-month low. That said, ECB policymaker and Spanish central bank head Pablo Hernandez de Cos said on Tuesday, “Spain’s GDP forecast is anticipated to be revised up, while CPI is expected to fall.” On a broader front, ECB policymaker Klaas Knot said on Tuesday that the ECB can be expected to keep raising interest rates for “quite some time” after March.
Elsewhere, the US removal of the testing restrictions on travelers from China contrasts with the likely escalation of the Sino-American tensions surrounding Taiwan and Russia to weigh on the sentiment, as well as propel the US Dollar’s haven demand.
However, a light calendar in Asia and cautious mood ahead of the key EU and US data/events seem to probe the EUR/USD traders even as the sellers refreshed a multi-day low recently.
Amid these plays, the S&P 500 Futures remain indecisive around the 3,988 level after falling the most in two weeks the previous day. On the other hand, the difference between the 10-year and two-year US bond coupons marked the deepest yield curve inversion in more than 40 years the previous day, keeping it intact by the press time. It should be observed that the US 10-year Treasury bond yields rose 0.15% while closing around 3.97% on Tuesday but the two-year counterpart gained 2.60% on a day when poking the highest levels since 2007, to 5.02% at the latest.
Looking forward, Eurozone Retail Sales for January, the second readings of Gross Domestic Product (GDP) for the fourth quarter (Q4) and Employment Change for the said period will precede the US ADP Employment Change for February to decorate the calendar. Additionally important will be the speeches from ECB President Christine Lagarde and the second round of Fed Chair Jerome Powell’s Testimony.
Technical analysis
A daily closing below the two-month-old ascending support line, now immediate hurdle near 1.0540, becomes necessary for the EUR/USD bears to aim for January’s low surrounding 1.0480.
