EUR/USD is trading on the back, heading toward 1.0800 in the European session. The US Dollar is holding previous gains amid a cautiously optimistic market mood. Investors weigh US debt ceiling developments ahead of US data.
The EUR/USD pair remains depressed for the third successive day on Thursday and languishes near its lowest level since early April touched the previous day. The US Dollar (USD) stands tall near a two-month high and is seen as a key factor weighing on the major. The recent hawkish remarks by several Federal Reserve (Fed) officials pushed back against market expectations for interest rate cuts later this year. This, along with the latest optimism that the US debt ceiling will be raised, remains supportive of elevated US Treasury bond yields and continues to underpin the buck.
In fact, US President Joe Biden and top congressional Republican Kevin McCarthy underscored their determination to strike a deal soon to raise the government’s $31.4 trillion debt ceiling. This helps calm fears of an unprecedented American debt default and boosts investors’ confidence, which is evident from a generally positive tone around the equity markets. This, in turn, holds back traders from placing aggressive bullish bets around the safe-haven Greenback. Apart from this, bets for more rate hikes by the European Central Bank (ECB) could help limit losses for the EUR/USD pair.
In fact, ECB President Christine Lagarde has already made it clear that efforts to curb stubbornly high inflation aren’t over and said that there are factors that can induce significant upside risk to the inflation outlook. This reinforces the view that there are more interest rate increases still to come and warrants some caution before positioning for any further depreciating move for the EUR/USD pair. Market participants now look to the US economic docket, featuring the release of the usual Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and the Philly Fed Manufacturing Index.
Traders will further take cues from speeches by influential FOMC members, which, along with the US bond yields, will drive the USD demand and provide some impetus to the EUR/USD pair. Apart from this, developments surrounding the US debt-limit negotiations and the broader risk sentiment should contribute to producing short-term trading opportunities around the major.
From a technical perspective, the EUR/USD pair, so far, has managed to hold its neck above the 100-day Simple Moving Average (SMA), currently pegged around the 1.0800 round-figure mark. A sustained break below will be seen as a fresh trigger for bearish traders and pave the way for an extension of the recent pullback from a one-year peak. Spot prices might then accelerate the fall towards the 1.0755-1.0750 support before eventually dropping to the 1.0700 round figure. The downward trajectory could get extended further towards the 1.0600 mark, with some intermediate support near the 1.0640-1.0635 region.
On the flip side, any attempted recovery back above mid-1.0800s might now confront some resistance near the 1.0875-1.0880 region ahead of the 1.0900 mark. The latter coincides with the weekly high, above which a fresh bout of a short-covering has the potential to lift the EUR/USD pair towards the 1.0960 horizontal support breakpoint. Some follow-through buying will suggest that the recent downfall has run its course and shift the bias back in favour of bullish traders, paving the way for a move beyond the 1.1000
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