EUR/USD languishes near YTD low as traders continue to trim Fed rate cut bets

• EUR/USD drops to a fresh YTD low and is pressured by a combination of factors.
• The USD builds on the post-NFP rise and touches its highest level since December.
• Bets for an April rate cut by the ECB continue to undermine the shared currency.

The EUR/USD pair trades with a negative bias for the second successive day on Monday and languishes near the YTD trough, around the 1.0770 region during the early European session. Investors further scaled back their expectations for a more aggressive policy easing by the Federal Reserve (Fed) in the wake of Friday's blockbuster US jobs data, which continues to push the US Treasury Bond yields higher. This, along with the risk of a further escalation of geopolitical tensions in the Middle East and China's economic woes, underpins the Greenback's relative safe-haven status and exerts pressure on the currency pair.

In contrast, falling inflation in Germany and France – the Eurozone's two largest economies – has raised hopes that the European Central Bank (ECB) could start cutting its benchmark deposit rate from the current record-high level of 4% by April. This is seen as another factor that contributes to the offered tone surrounding the EUR/USD pair and supports prospects for an extension of the post-NFP rejection slide from the vicinity of the 1.0900 mark. Traders now look to the US ISM Services PMI and Fedspeak for fresh impetus later today.

Daily Digest Market Movers: EUR/USD seems vulnerable near YTD low amid bullish US Dollar

• The upbeat US jobs report points to a still-resilient US labor market and gives the Federal Reserve headroom to keep rates higher for longer, underpinning the US Dollar and exerting pressure on the EUR/USD pair.
• Furthermore, Fed Chair Jerome Powell, speaking in an interview with the US TV show 60 Minutes over the weekend, reiterated that the March meeting is likely too soon to have the confidence to start cutting interest rates.
• The probability of the first interest rate cut by the Fed in May stands at about 70%, down from 90% before the key employment data, and the probability of 150-bps of cumulative rate cuts in 2024 plummets to just around 20%.
• The yield on the benchmark 10-year US government bond extends the post-NFP rise beyond the 4.0% threshold on Monday and favours the USD bulls amid a slight deterioration in the global risk sentiment.
• Israel's Prime Minister Benjamin Netanyahu said that the country will not end the war before it completes all of its goals, while media reports suggest that Hamas is set to reject the Gaza ceasefire deal proposed in Paris.
• The US Central Command said its forces conducted a strike in self-defence against a Houthi land-attack cruise missile and struck four anti-ship cruise missiles prepared to launch against ships in the Red Sea.
• A private survey showed that business activity in China's services sector remained in expansionary territory for 13 straight months, though grew less than expected in January and added to slowdown concerns.
• Eurozone CPI moves slowed from the 2.9% YoY rate to 2.8% in January, moving closer to the 2% target and making it more likely that the European Central Bank will start cutting interest rates by April.
• ECB's Governing Council member Boris Vujcic said that the central bank needs to ensure there aren’t any second-round effects on inflation from wages before cutting rates, though fails to inspire the Euro bulls.
• The US ISM Services PMI is due for release later today and is expected to improve from 50.6 to 52.0 in January, which, along with Fedspeaks, will influence the buck and provide some impetus to the currency pair.

Technical Analysis: EUR/USD struggles near 100-day SMA, seems poised to depreciate further

From a technical perspective, acceptance below the 100-day Simple Moving Average (SMA) will be seen as a fresh trigger for bearish traders. Given that oscillators on the daily chart are holding deep in the negative territory and are still away from being in the oversold zone, the EUR/USD pair might then slide to the December 2023 swing low, around the 1.0725-1.0720 region. This is closely followed by the 1.0700 mark, below which the downward trajectory could accelerate further towards the 1.0665-1.0660 intermediate support en route to the 1.0620-1.0615 region and the 1.0600 round figure.

On the flip side, any attempted recovery back above the 1.0800 mark is likely to attract fresh sellers and remain capped near the 200-day SMA, currently pegged near the 1.0835-1.0840 zone. A sustained strength beyond, however, might trigger a short-covering rally and allow the EUR/USD pair to reclaim the 1.0900 round figure. The latter should act as a key pivotal point, which if cleared decisively will negate the negative outlook and shift the near-term bias in favour of bullish traders.