EUR/USD slides on Fed rate hike speculation, trades below 1.1000

• The EUR/USD pair is down for the second day in a row, as sellers target 1.0800.
• New York’s Empire State Manufacturing Index rose for the first time in five months.
• EUR/USD Price Analysis: Could see a short-term pullback before resuming higher.

He EUR/USD loses traction for technical reasons and the strengthening of the US dollar (USD), as speculation that the US Federal Reserve (Fed) would raise rates in May, gains support. US Treasury yields rose; consequently, bonds fell, a tailwind for the dollar. At the time of writing, the EUR/USD pair is trading at 1.0911, having hit a yearly high of 1.1075.

Rising expectations of a 25 basis point rate hike by US central banks boosted the dollar

Wall Street is trading in a risk averse state. The US and Eurozone economic calendar is thin, with the main driver behind the EUR/USD pair being the two-year US Treasury yield. The 2-year US bond yield is gaining almost 10 basis points to 4.194%, while CME’s FedWatch tool shows that the odds of a 25 basis point rate hike by the Fed stand at 84.7%, above the 78% of last Friday.

The US Dollar Index (DXY) continues to advance and tests the 20-day EMA at around 102,321. A break above it could expose 103,000.

In terms of data, the New York Empire State Manufacturing Index rose unexpectedly in April, from -24.5 to 10.8, beating forecasts for a plunge to -18. Orders and shipments are up. Rising orders and shipments were the reasons for the expansion, while a measure of prices paid fell 9 points.

In the Eurozone, inflation in Italy rose to 7.6%, below the consensus and 9.1% in February. Meanwhile, the president of the European Central Bank (ECB), Christine Lagarde, gives statements, but does not comment on monetary policy. Earlier, some ECB members made some comments, led by Nagel, who expects inflation to slow down before the summer holidays. Later, ECB’s Kazaks commented that the ECB has the option of 50 or 25 basis points at the next meeting in May.

What is there to watch out for?

During the week, the EU will release the Zew economic sentiment index for the bloc and Germany, along with the EU trade balance. In the United States, housing data and the Fed’s Bowman will be published.

EUR/USD Technical Analysis

EUR/USD continues to trend higher, although after reaching a new all-time high of 1.1075, it has retreated below 1.1000. Additionally, oscillators such as the RSI pointing lower, as well as the RoC, suggest that buyers are losing momentum. Therefore, the path of least resistance for EUR/USD is to the downside in the short term.

The first support for EUR/USD would be 1.0900, followed by the 20-day EMA at 1.0881. A decisive break would send the pair down towards the 50-day EMA at 1.0800.