• Concerns about potential Red Sea ship attacks dampened risk sentiment.

• Comments from ECB officials opposing early rate cuts cast a shadow on the global rate outlook.

• Money markets expect cuts of almost 145 basis points in the ECB’s deposit rate this year.

A bearish tone dominated Tuesday’s EUR/USD price analysis as the dollar surged. Investors recalibrated their expectations of a March rate cut by the Fed, swayed by the hawkish sentiments expressed by European Central Bank officials.

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Simultaneously, concerns about potential Red Sea ship attacks dampened risk sentiment. Comments from ECB officials opposing early rate cuts cast a shadow on the global rate outlook. Consequently, market expectations for a quarter basis point Fed rate cut in March have decreased to a 66% probability, down from 77% the previous day.

On Monday, ECB’s Joachim Nagel cautioned against the mistake of premature interest rate reductions. Moreover, he said, “It’s too early to talk about cuts; inflation is too high. ”

Meanwhile, money markets are currently pricing 145 basis points of cuts to the ECB’s deposit rate this year, likely starting in April.

Charu Chanana, Head of Currency Strategy at Saxo in Singapore, noted, “The hawkish ECB commentaries last night have fueled concerns that market pricing for the Fed rate path may also be aggressive. Moreover, some safe-haven demand is likely at play with Red Sea disruptions escalating.”

On Monday, a Houthi movement official from Yemen declared an expansion of their Red Sea targets, including US ships. Furthermore, they vowed to continue with attacks following US and British strikes on their Yemen sites.

EUR/USD key events today

• The US Empire State Manufacturing Index

EUR/USD technical price analysis: Bears threaten with a new impulse leg

On the technical side, the EUR/USD price is on the verge of breaking below the 1.0900 support level. The bias is bearish, with the price below the 30-SMA and the RSI nearly oversold. The bearish move comes after the price found strong resistance at the 1.1000 key level. Additionally, the price got near the 0.5 fib level, another strong resistance.

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Moreover, there is a high chance the price will push below 1.0900, as this comes after a corrective move. Therefore, bears might be gearing up to make an impulsive move to the 1.0800 support level. However, if the 1.0900 support holds firm, the price will continue in the corrective move with the nearest resistance at 1.1000.

https://www.forexcrunch.com/blog/2024/01/16/eur-usd-price-analysis-ecb-hawks-alter-investor-outlook-on-fed-rate-cuts/