EUR/USD advances to one-week top on softer USD, upside potential seems limited

• EUR/USD scales higher for the fifth successive day and climbs to over a one-week high on Monday.
• The Fed rate cut uncertainty keeps the USD bulls on the defensive and lends support to the major.
• ECB rate cut bets might cap gains for the shared currency ahead of the US CPI report on Tuesday.

The EUR/USD pair builds on last week's recovery move from the 1.0725-1.0720 area, or its lowest level since November 14 and gains some positive traction for the first successive day on Monday. The momentum lifts spot prices to over a one-week peak during the early part of the European session, with bulls now looking to extend the momentum further beyond the 1.0800 mark amid a modest US Dollar (USD) downtick. The uncertainty over the likely timing and pace of interest rate cuts by the Federal Reserve (Fed) keeps the USD bulls on the defensive below a multi-month top touched last week. Apart from this, the underlying bullish sentiment across the global equity markets is seen as another factor undermining the safe-haven Buck.

That said, growing acceptance that the Fed will keep interest rates higher for longer in the wake of a still resilient US economy remains supportive of elevated US Treasury Bond yields and should act as a tailwind for the Greenback. Furthermore, bets that the European Central Bank (ECB) will start cutting interest rates at the start of the second quarter might contribute to capping the shared currency and the EUR/USD pair. This makes it prudent to wait for strong follow-through buying before confirming that spot prices have formed a near-term bottom. In the absence of any relevant macro data on Monday, speeches by FOMC members might provide some impetus, though the focus remains on the US consumer inflation figures due on Tuesday.

Daily Digest Market Movers: Benefits from softer USD, ECB rate cut bets might cap gains

• The Federal Reserve rate cut uncertainty, along with a positive risk tone, undermines the US Dollar and pushes the EUR/USD pair higher for the fifth successive day, to over a one-week high.
• The incoming robust US macro data and hawkish remarks by a slew of influential FOMC members forced investors to scale back their expectations for early and steep interest rate cuts this year.
• The current market pricing indicates that the Fed could deliver four, or five at the most, 25 basis points rate cuts in 2024 as compared to seven such moves anticipated at the end of the last year.
• Dallas Fed President Lorie Logan said on Friday that she is in no rush to cut interest rates and wants more data to confirm the tremendous progress on bringing down inflation is durable.
• Separately, Atlanta Fed President Raphael Bostic noted that inflation has been too high for too long and the US economy wants to avoid a new spike on its path back to the pre-pandemic strength.
• The yield on the benchmark 10-year US government bond holds comfortably above the 4.0% mark, which might continue to act as a tailwind for the Buck and cap gains for the currency pair.
• The recent mixed signals from European Central Bank officials, over the prospects for interest rate cuts, could also hold back bulls from placing aggressive bets around the shared currency.
• Several ECB officials have been trying hard to temper expectations for early policy easing, though the markets are pricing in the possibility of the first-rate cut at the start of the second quarter.
• The bets were reaffirmed by a fall in German inflation, which decelerated to the 2.9% YoY rate in January from the 3.7% in the previous month and validated the view that price pressures are easing.
• Adding to this, ECB Governing Council member Fabio Panetta said on Saturday that the rate cut moment is fast approaching, and that timely and gradual steps could help to reduce ensuing volatility.
• Traders might also opt to move to the sidelines ahead of the US consumer inflation figures on Tuesday, which might influence the Fed's future policy decision and provide some meaningful impetus.

Technical Analysis: Could face difficulty in making it through the 1.0830 confluence resistance

From a technical perspective, any subsequent move beyond the 1.0800 mark is likely to meet with a fresh supply and remain capped near the 1.0830 confluence hurdle. The said area comprises the very important 200-day Simple Moving Average (SMA) and a one-month-old descending trend line, which, in turn, should act as a key pivotal point. A sustained move beyond might shift the near-term bias in favor of bullish traders and lift the EUR/USD pair to the 1.0900 round figure. The momentum could get extended further towards the 1.0930-1.0935 intermediate resistance en route to the 1.0970-1.0975 area and the 1.1000 psychological mark.

On the flip side, weakness below the Asian session low, around the 1.0775-1.0770 region, is likely to find some support near the 1.0740 area ahead of the 1.0725-1.0720 area, or a multi-month low touched last week. This is closely followed by the 1.0700 mark, which if broken decisively will be seen as a fresh trigger for bearish traders and make the EUR/USD pair vulnerable. Spot prices might then accelerate the slide further towards the 1.0665-1.0660 support before eventually dropping to the 1.0620-1.0615 region and the 1.0600 round figure.