The Euro has slipped significantly lower against the US Dollar since soaring to multi-year highs on January 6, on the back of the European Central Bank and Federal Reserve’s divergent stances on the provision of additional monetary policy.
Global bond markets have sold-off robustly in recent weeks, notably worrying several ECB officials and calling into question the pace of the region’s recovery. Indeed, Governing Council member, and head of open market operations, Isabel Schnabel stated that “a rise in real long-term rates at the early stages of the recovery, even if reflecting improved growth prospects, may withdraw vital policy support too early and too abruptly given the still fragile state of the economy”.
Chief Economist Philip Lane, who reiterated that the central bank will lean on the flexibility of its Pandemic Emergency Purchase Program (PEPP) to limit any unwanted tightening of financial conditions. The ECB is contemplating expanding its bond-purchasing program to underpin bond prices and in turn limit upward pressures on yields.
From a technical perspective, EUR/USD looks set to extend its recent slide lower, as price plunges below key psychological support at 1.2000 and the RSI dives to its lowest levels since June 2020.
A more extended decline to challenge the trend-defining 55-EMA (1.1727) looks likely, with a break below bringing the November 2020 low (1.1602) into play.
Daily chart highlights the precariousness of the situation facing EUR/USD, as price attempts to rebound away from the sentiment-defining 200-MA (1.1816).
With the slope of the 55-EMA and 100-MA notably flattening, and the RSI eyeing a push into oversold territory, further losses appear in the offing.
Slicing through the 200-MA would likely intensify selling pressure and open the door for the exchange rate to challenge the 38.2% Fibonacci retracement (1.1695) of the uptrend extending from the March 2020 nadir to the yearly high.
However, if the 200-MA remains intact, a rebound back towards former support-turned-resistance at the February low (1.1952) could be on the cards. A daily close above that is needed to bring the March high (1.2133) into play.