Euro To Resume Its Downfall After A Bounce

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The euro saw a solid intraday bounce on Tuesday despite the lack of real catalyst except for some broader weakness surrounding the greenback. The USD index failed to extend yesterday’s bounce and threatens the 103.00 mark as the North American session begins. The buck weakened nearly across the market amid a retreat in 10-year Treasury yields after the failure to overcome the 3% level that was hit on Monday for the first time in three years.

Dollar demand has also abated due to some improvement in risk sentiment this week. Adding to the selling pressure surrounding the US currency, the looming Fed’s two-day meeting may have triggered some position squaring.

Against this backdrop, EURUSD rallied from the 1.0500 zone to notch intraday highs around 1.0577. Notably, the common currency exceeded the 100-hour SMA for the first time since April 22, suggesting the pair could at least retain a bullish bias in the near term.

However, the euro’s recovery potential remains limited, especially as the Fed is widely expected to deliver a so-called ‘hawkish hike’. The central bank is likely to raise rates by 50 basis points and express an aggressive view of its tightening path for the months ahead. 

As such, the USD index could get below 103.00 in the immediate term to attract fresh buying pressure that may bring the dollar back to multi-year tops seen around 104.00 last week. In this scenario, EURUSD could get back below 1.0500, with the 1.0470 region staying in the market focus since last week’s plunge. 23:06