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EUR/USD Carves Bearish Series Amid Growing Bets for Fed Rate-Hike

EUR/USD Carves Bearish Series Amid Growing Bets for Fed Rate-Hike

2017-03-02 15:38:00
David Song, Currency Strategist
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Talking Points:

- EUR/USD Carves Bearish Series Amid Growing Bets for Fed Rate-Hike.

- AUD/USD Searches for Support Ahead of RBA; RSI Points to Further Losses.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

EUR/USD

1.0510

1.0552

1.0499

37

53

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • The failed attempt to break out of the descending channel keeps the near-term outlook for EUR/USD tilted to the downside, with the pair at risk of extending the recent series of lower highs & lows especially as the Relative Strength Index (RSI) highlights a similar dynamic; even though the single currency outperforms against its higher-yielding counterparts, the U.S. dollar may continue to benefit from the hawkish rhetoric coming out of the Federal Reserve as a growing number of central bank officials show a greater willingness to raise the benchmark interest rate sooner rather than later.
  • Fed Governor Lael Brainard struck a similar tone to her colleagues and argued a rate-hike ‘will likely be appropriate soon,’ with Fed Fund Futures are now pricing a greater than 70% probability for a move at the March 15 interest rate decision; in turn, market participants may pay increased attention to the key speeches by Fed Vice-Chair Stanley Fischer and Chair Janet Yellen as the central bank enters the blackout period ahead of the policy meeting, and another round of hawkish rhetoric may spark further losses in EUR/USD especially as the European Central Bank (ECB) is widely anticipated to endorse a dovish tone at the March 9 policy meeting.
  • Even though the headline reading for the Euro-Zone’s Consumer Price Index (CPI) climbed an annualized 2.0% in February, the ongoing weakness in the core rate of inflation may encourage the ECB to further expand its balance sheet as President Mario Draghi and Co. argue ‘headline inflation had increased recently, mainly owing to developments in energy prices;’ with that said, the Governing Council is likely to retain a dovish tone and may increase its efforts to ward off a ‘taper tantrum’ as the central bank is on course to reduce its asset-purchase program to EUR 60B/month starting in April.
  • The string of failed attempts to close above the 1.0600 (23.6% expansion) hurdle reinforces a bearish outlook for EUR/USD, with a break/close below 1.0470 (38.2% expansion) to 1.0500 (50% expansion) opening up the next downside region of interest around 1.0370 (38.2% expansion) to 1.0420 (61.8% expansion).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

AUD/USD

0.7575

0.7682

0.7567

101

115

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using Trading View

  • The Australian dollar failed to benefit from the Trade Balance report as the surplus unexpectedly narrowed in January, and the aussie-dollar may continue to give back the advance from earlier this year as the pair breaks down for a near-term holding pattern; downside targets will be in focus as the bearish RSI formation gathers momentum, and the Reserves Bank of Australia’s (RBA) March 7 interest rate decision may ultimately generate a limited market reaction as the central bank is widely expected to keep the official cash rate at the record-low of 1.50%.
  • Governor Philip Lowe and Co. may continue to tame interest-rate expectations as the committee warns ‘factors that had weighed on inflationary pressures could be more persistent than had been assumed,’ and the wait-and-see approach may have a limited impact on the near-term outlook as Fed officials talk up bets for a March rate-hike.
  • In turn, downside targets will be in focus over the days ahead, with a close below the Fibonacci overlap around 0.7590 (100% expansion) to 0.7600 (23.6% retracement) raising the risk for a move towards 0.7530 (38.2% expansion) followed by the next area of interest around 0.7500 (50% retracement).

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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