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The EUR/USD pair struggled to capitalize on its intraday uptick to weekly tops, or find acceptance above the 1.2100 mark and came under some renewed selling pressure on Wednesday. A sudden pickup in the US Treasury bond yields provided a strong lift to the greenback, which, in turn, was seen as a key factor that exerted some downward pressure on the major. The US bond market has been reacting strongly to the prospects for a relatively faster US economic recovery, which has been fueling expectations for an uptick in inflation and raised doubts that the Fed would retail ultra-low interest rates for a longer period. The reflation trade was driven by the impressive pace of COVID-19 vaccinations and the progress on a massive US fiscal spending plan.
Short-term technical outlook
From a technical perspective, the pair on Wednesday faced rejection near a short-term ascending trend-channel support breakpoint. Given the recent sharp pullback from near three-year tops, the mentioned channel constituted the formation of a bearish flag pattern on short-term charts. Failure near an important support breakpoint, now turned resistance supports prospects for further weakness. That said, bearish traders might wait for some follow-through selling below the key 1.2000 psychological mark before placing fresh bets. The pair might then turn vulnerable to challenge YTD lows, around the 1.1955-50 region and accelerate the slide further towards the next major support near the 1.1920-15 region.
On the flip side, the 1.2090-1.2100 region might continue to act as immediate strong resistance. This is followed by the 1.2130-35 supply zone, which if cleared decisively might trigger some near-term short-covering move. The subsequent momentum has the potential to push the pair further beyond the 1.2170 intermediate hurdle, towards reclaiming the 1.2200 round-figure mark.
24-hour view: “Our expectation for USD to ‘trade between 106.50 and 106.95’ was wrong as it rose to a high of 107.15. While the advance appears to be struggling to maintain its momentum, USD could continue to edge higher. That said, the major resistance at 107.35 is likely out of reach. Support is at 106.85 followed by 106.70.”
Next 1-3 weeks: “There is not much to add to update from Tuesday (02 Mar, spot at 106.80). As highlighted, the ‘outlook for USD is still positive’ but ‘lackluster shorter-term momentum suggests a slow pace of advance and 107.35 may not come into the picture so soon’. Looking ahead, a clear break of 107.35 would shift the focus to 107.70. On the downside, a break of 106.40 (‘strong support’ level previously at 106.00) would indicate that the positive phase in USD that started late last week has run its course.
WTI shifts the focus to $65.00
Prices of the West Texas Intermediate rose beyond the $61.00 mark per barrel on Wednesday. The uptick was amidst increasing open interest and volume, exposing a probable visit to the YTD highs near the $64.00 mark in the short-term horizon. Further up comes in the 2020 highs in the $65.60 zone.
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