The EUR/USD pair extended its free fall on Wednesday and hit its lowest level since March 2017 at 1.0514 as the greenback remained firm. Still, the pair managed to recover some losses during the New York session as market sentiment improved slightly.
The main driver behind the EUR/USD slump seems to be divergent monetary policy stances between the Federal Reserve and the European Central Bank, as the former is expected to raise interest rates more aggressively at its May 4 meeting, while the latter remains in wait-and-see mode as it faces a tougher inflation-growth trade-off.
At the same time, renewed global growth concerns sparked by China’s strict lockdowns and geopolitical uncertainty as the Russia Ukraine conflict seems far from over have been favoring the U.S. dollar over the last weeks.
The DXY, which measures the value of the U.S. dollar against a basket of currencies, has rallied to its highest level in five years at 103.28 on Wednesday.
The U.S. will release its first estimate for the Q1 GDP on Thursday, which is expected to show a 1.1% annualized growth, a considerably slower rate than the 6.9% from the previous quarter.
From a technical perspective, the EUR/USD pair holds the bearish bias intact as the dollar seems unstoppable at the time. However, with most Fed action already priced in, a corrective rally cannot be ruled out.
Immediate resistance is seen at 1.0650, followed by the former support at 1.0757. Still, any upward move should remain limited by the 20-day SMA, currently around 1.0840.
On the downside, a loss of 1.0514 would pave the way to the March 2017 low at the 1.0490 area, en route to January 2017 lows at the 1.0340 zone.
