EUR/USD eyes to regain 1.1000 as ECB’s de Guindos, monetary market bets test bears at weekly low
- EUR/USD prints three-day downtrend, recently bouncing off daily low.
- ECB’s De Guindos dismiss possibility of stagflation even while expecting higher inflation for longer.
- Monetary markets price in 50 bps rate hikes by the year end.
- Market sentiment improves on Russia-Ukraine headlines, yields retreat from three-year high.
EUR/USD pares intraday losses around 1.0980 amid the initial European session on Tuesday. Even so, the major currency pair remains near the lowest level in a week during the three-day downtrend.
The major currency pair’s latest rebound could be linked to the comments from the European Central Bank (ECB) Vice President Luis de Guindos who dismissed fears of stagflation in the bloc. The policymaker also said, “Exposure of European banks to Russia is limited,” while conveying fears of higher inflation for longer.
Elsewhere, money markets hint at roughly 50 basis points (bps) of the ECB rate hikes by the end of 2022, which in turn propel EUR/USD prices.
Also likely to underpin the EUR/USD’s corrective pullback is the latest retreat in the US Treasury yields. That said, the US 10-year Treasury yields and the 2-year counterpart both rose to a fresh high since May 2019 during the Asian session before recently easing to 2.32% and 2.16%.
It should be noted that Ukrainian President Volodymyr Zelenskyy’s readiness to discuss commitment from Ukraine not to seek NATO membership and Russia’s ability to pay the second installment of Eurobond coupons favor the market sentiment and favor the EUR/USD buyers. That said, the Euro Stoxx 50 Futures print mild gains at the latest.
Moving on, multiple ECB speakers are on the cards to shake EUR/USD, including ECB President Christine Lagarde. Also important will be the Fedspeak and headlines from Russia-Ukraine.
Technical analysis
A clear downside break of a two-week-old ascending trend line directs EUR/USD towards the mid-March swing low near 1.0900. Alternatively, the support-turned-resistance near 1.1020 precedes the 21-DMA level of 1.1065 to restrict short-term recovery moves.