The pair is trading in a relatively tight range to start the new week. That isn't too surprising given the lack of any key drivers to work with. And there isn't much to change that up in European trading today either. And so, we are seeing price action just linger above the 1.0800 mark after last week's technical push lower:
The figure level did help to arrest the slight drop at the end of February. As such, it is seen as a modest support level alongside some bids layered in there at the moment. A break below that will solidify the downside momentum as sellers will be chasing a push towards the February low just under 1.0700 next. But we're not quite there yet.
In the bigger picture, the balance in EUR/USD lies in the question of which central bank is going to be more dovish in the months ahead? Is it going to be the Fed or the ECB? For now, both major central banks are slated to begin cutting rates in June. However, at the balance, I'd wager that it is more of a certainty for the ECB than the Fed.
At the end of the day, it will come down to what the data says in the next few months. So, if there is any material shift in pricing, which central bank outlook would be more severely impacted?
Looking at market odds, it is more or less the same. In the case of the Fed, traders are pricing in ~83 bps worth of rate cuts for the year. As for the ECB, traders are pricing in ~91 bps worth of rate cuts. The suggestion is that we should see three events of 25 bps rate cuts for both central banks. But traders are leaning ever so slightly towards maybe calling four 25 bps rate cuts for the ECB.
Thus, if we are to see traders run back on the pricing above, it really comes down to the finer details. And I would argue that the most important one being the timing of it all. But if things are looking neck and neck, I can't help but feel that the balance of risks are favoured towards the dollar more so than the euro.
10-year Treasury yields are still paying 4.21% as of today and that still beats out the competition for the time being. And if risk trades are to correct on the back of a repricing in central bank odds, that is also another supportive factor to consider for the greenback as well.
In any case, the technicals will continue to also play its role in identifying the market bias. And right now, EUR/USD sellers are in control but they have work to do to push for the next key downside test. And the first challenge this week will be to drive price back below the 1.0800 mark.
