- Concerns about potential ship attacks in the Red Sea dampened risk sentiment.
- Comments from ECB officials opposing an early rate cut cast a shadow over the global rate outlook.
- Money markets expect a cut in the ECB deposit rate of almost 145 basis points this year.
A bearish tone dominated the EUR/USD price analysis on Tuesday as the dollar rallied. Investors recalibrated their expectations for a March interest rate cut by the Fed, swayed by hawkish sentiments expressed by European Central Bank officials.
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At the same time, concerns about potential ship attacks in the Red Sea have reduced the sense of risk. Comments from ECB officials opposing an early rate cut cast a shadow over the global rate outlook. Accordingly, market expectations for a quarter-basis point Fed rate cut in March fell to a 66% probability, down from 77% the previous day.
The ECB’s Joachim Nagel warned on Monday of the mistake of cutting interest rates too soon. Moreover, he said, “It is too early to talk about cuts; inflation is too high. ”
Meanwhile, money markets are currently seeing the ECB interest rate cut by 145 basis points this year, likely starting in April.
Charu Chanana, head of currency strategy at Sako in Singapore, noted: “The ECB’s hawkish comments last night fueled concerns that the market may be pricing in the Fed rate too aggressively. Furthermore, some demand for a safe haven is likely at play with the escalating disturbances in the Red Sea.
On Monday, an official from Yemen’s Houthi movement announced an expansion of its targets in the Red Sea, including US ships. Furthermore, they have vowed to continue their attacks following US and British attacks on their sites in Yemen.
EUR/USD key events today
- Empire State Index of Production
Technical analysis of EUR/USD prices: Bears threaten a new impulse leg
On the technical side, the EUR/USD price is on the verge of breaking below the support level of 1.0900. The bias is bearish, with price below the 30-SMA and RSI nearly oversold. The bearish move comes after the price found strong resistance at the key 1.1000 level. In addition, the price approached the 0.5 fib level, which is another strong resistance.
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Furthermore, there is a good chance that the price will push below 1.0900, as this comes after a corrective move. Therefore, the bears may be preparing to make an impulsive move to the 1.0800 support level. However, if the support at 1.0900 remains firm, the price will continue in a corrective move with the nearest resistance at 1.1000.
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