- EUR/USD has bounced to the 1.0550 area and is eyeing a range test of short-term highs near 1.0600.
- But trading in currency markets remains cautious ahead of this week’s Fed meeting and the release of the official US jobs report.
- Against the backdrop of an aggressive Fed tightening relative to the ECB’s slower move, EUR/USD risks remain skewed to the downside.
Profit-taking in the US dollar ahead of the start of the US trading session on Tuesday has given the EUR/USD moderate momentum, with the pair recovering from previous lows in the 1.0500 area back higher to the 1.0550 area. At current levels at 1.0565, the pair is trading around 0.6% gains and is eyeing a test of last Friday’s highs just below 1.0600, a level that marks the ceiling of the pair’s recent short-term range.
But a spate of upcoming event risk later in the week, notably the Fed’s policy announcement on Wednesday and the release of the official US labor market report on Friday, likely means that’s unlikely to happen. a break back to 1.0600 yet. Traders/market participants tend to err on the side of keeping their powder dry before big events so as not to get caught on the wrong side of a big move.
Techs have marked the 2020 lows in the 1.0630 area as a key resistance area to watch out for. In the context of an aggressive Fed tightening (they will raise interest rates by 50 bps this week and signal more moves of similar size in the future) and a still very tight US labor market (as official and JOLTS data from this week), betting on a weakening US dollar seems unwise at the moment.
Amid expectations that the ECB will not tighten monetary policy as much as the Fed in 2022, EUR/USD risks remain skewed to the downside, strategists continue to argue. Some highlighted comments from ECB Vice President Luis de Guindos over the weekend, who spoke of interest rates not being on a “default” path, which some saw as dovish.
As for upcoming event risk, ECB President Christine Lagarde was scheduled to speak earlier in the day, and while she hasn’t said anything on politics yet, she could do so later.
Technical levels
Source: Fx Street
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