- EUR/USD attracts some dip buying on Wednesday, although it lacks continuation.
- The hawkish FOMC minutes lend some support to the dollar and act as a headwind.
- After hawkish remarks from the ECB’s Lagarde, the downside appears to be limited.
The EUR/USD pair appears to have halted the previous day’s corrective decline, or its highest level since August 11, during Wednesday’s Asian session on Wednesday and for now. Spot prices are currently trading around the 1.0915-1.0920 area, up less than 0.10% on the day and remaining at the mercy of American dollar (USD) price dynamics.
The USD Index (DXY), which tracks the greenback against a basket of currencies, is looking to capitalize on a slight overnight rebound from near three-month lows and is proving to be a key factor providing support to the EUR/USD pair. Minutes from the Federal Reserve’s October 31-November 1 meeting revealed that policymakers backed the argument for higher interest rates for longer. rates for some time to tame inflation. The hawkish outlook triggered an intraday rise in US Treasury yields and prompted some USD short covering on Tuesday.
However, market participants appear confident that the US central bank will hold rates flat rather than raise them, and are still pricing in the possibility of a first-rate cut at the April 30-May 1 meeting. That, in turn, pulls the benchmark 10-year US Treasury yield back to a two-month low and limits the greenback’s gains. Next, the nightly hawkish remarks of the President of the European Central Bank (ECB). Christine Lagarde offer some support to the shared currency and act as a tailwind for the EUR/USD pair.
Speaking at an event in Berlin, Lagarde said it was too early to declare victory over inflation and that bets based on the flow of short-term data were premature. This forces investors to reduce their expectations that the ECB’s next move will be a rate cut as soon as April, which in turn prevents bulls from taking new bets around the EUR/USD pair. Therefore, it will be prudent to wait for some subsequent buying before looking to extend the recent breakout momentum through the confluence of the 100- and 200-day simple moving averages (SMA).
Going forward, there is no relevant market-related economic data to be released from the Eurozone on Wednesday. Meanwhile, the US economic paper includes the release of a weekly editorial Unemployment claims, durable goods orders and a revised Michigan consumer sentiment index later in the early North American session. This, along with US bond yields and broader risk sentiment, should weigh on USD demand and provide some impetus EUR/USD few.