EUR/USD continues its run lower amid increasing Fed hike bets, surging Treasury yields

FUNDAMENTAL
OVERVIEWUSD:The US dollar continues to remain supported amid inflation worries and Fed
rate hike bets. The markets started to grow more impatient amid the prolonged
US-Iran stalemate and Strait of Hormuz closure. Traders are now pricing in a
50% chance of a rate hike by year-end. On the US-Iran front nothing has changed. Trump continues to threaten Iran
with new strikes if they don’t make a deal, while Tehran warns the US that they
have gained military knowledge from previous hostilities and that “a return to
war would feature many more surprises”.The Fed is slowly abandoning the easing bias with more and more
policymakers talking about the need of keeping all options on the table, and
some explicitly bringing up rate hike possibilities. If nothing changes before the June meeting, we might be in for a hawkish
surprise as inflation continues to run hot and the US data remains resilient. In the short-term, a resolution and the reopening of the Strait will likely
weigh on the greenback on falling oil prices and increased rate cut bets. But
if the Strait remains closed for longer and oil prices stay elevated, the risk
of the Fed being forced to hike anyway increases.EUR:On the EUR side, a June
rate hike is basically a done deal as policymakers hinted that the situation in
the Middle East and oil prices will need to change markedly to steer them away
from a rate hike. The market is pricing in an
83% chance of a rate hike in June and a total of 70 bps of tightening by
year-end (almost 3 rate hikes). As previously mentioned, this makes it harder
for the euro to rally on interest rate expectations alone as the ECB is
unlikely to “outhawk” the market pricing. The recent economic data
has been highlighting the bad combination of weaker economic activity and
stronger price pressures. The ECB wants to err on the cautious side and deliver
an insurance hike if the situation doesn’t change before June. After that, we can expect
the central bank to stay on hold until September at very least as they gather
more data over the summer. EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAMEOn the daily chart, we can
see that EURUSD broke below the key 1.1660
support zone, retested it and continued lower. If we get another pullback into
the support turned resistance, we can expect the sellers to step in with a
defined risk above it to keep pushing into the 1.4 handle next. The buyers, on
the other hand, will look for a break to pile in for a rally into the downward trendline
around the 1.1750 level.EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAMEOn the 4 hour chart, we have
a downward trendline defining the bearish momentum on this timeframe. The
sellers will likely continue to lean on the trendline with a defined risk above
it to keep pushing into new lows. The buyers, on the other hand, will look for
a break to extend the pullback into the resistance. EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAMEOn the 1 hour chart, there’s not much we can add here as the sellers will have
a better risk to reward setup around the trendline or the resistance, while the
buyers will need to wait for upside breaks to start piling in for new highs.
The red lines define the average daily range for today. UPCOMING CATALYSTSToday, we have the FOMC
meeting minutes. Tomorrow, we get the Eurozone PMIs, the latest US Jobless
Claims figures and the US Flash PMIs.
This article was written by Giuseppe Dellamotta at investinglive.com.

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