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EURUSD: growth stalls at 38% Fibonacci retracement level

The EURUSD pair locked in gains on Tuesday, March 2, up 0.35% to 1.2090. During the first half of the session, the price action dropped below the psychologically important 1.20 level to 1.1992. Major currencies came under pressure from risk aversion amid fears of rising inflation stateside and expectations that the Fed will taper its bond purchases.

The first currency to rebound against the dollar was the aussie. Other currencies then followed suit and the growth gained momentum after speeches by Fed members Lael Brainard and Mary Daly. They reassured the markets about widening bond yields. In addition, government bond purchases are set to continue at the current pace until significant progress is made towards achieving the regulator’s goals. The central bank is in no hurry to wind down its support measures.

The rebound in the euro exchange rate reached 104 pips, from 1.1992 to 1.2094. Market participants now need to gain confirmation of the arguments put forward  by Brainard and Daily from Jerome Powell. In this case, the dynamics of US Treasury yields will fade into the background and the DXY will extend its descent.

Today’s macro agenda (GMT+3)

  • From 11:15 to 12:30 services PMIs (February) out of Spain, Italy, France, Germany, the Eurozone and the UK
  • 13:00 Eurozone: PPI (January)
  • 16:15 US: ADP employment change (February)
  • 16:30 Canada: building permits (January)
  • 17:45 US: Markit services PMI (February); 18:00 ISM non-manufacturing PMI (February)
  • 18:30 US: EIA weekly petroleum status report
  • 22:00 US: Fed Beige Book
  • 23:15 New Zealand: RBNZ Adrian Orr speech

Current outlook

At the time of writing, the single currency was trading at $1.2086. The rebound came on the back of comments from Fed officials. As a result, a daily candlestick was formed with a long lower shadow, a bullish body and a swing of 100 pips.

What to expect from the euro today

The 10-year Treasury yield fell 2.04% to 1.393% on Tuesday. The yield rose to 1.40% in Asian trading, which keeps the dollar from falling.

In terms of Fibonacci analysis, the upward retracement was 38% of the fall from 1.2243 to 1.1992. Until the head of the Fed Jerome Powell speaks, the market can expect heightened volatility. Uncertainty will be compounded by the OPEC+ meeting (scheduled for March 4) and Friday's US non-farm payrolls report.

In light of yesterday's daily candle and the upcoming events, we are looking for a pullback to the balance line (1.2055) with a subsequent ascent to 1.2130 (112-degree angle). FX players are advised to focus on AUDUSD dynamics. If the pair starts to rise sharply, that means that it will drag the whole FX market upward.

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