EUR/USD EXTENDS RECOVERY ABOVE 1.0550, DOWNSIDE SEEMS LIKELY AS US NFP HOGS LIMELIGHT

EUR/USD has scaled above 1.0550 after a recovery move, however, the recovery move lacks fundamental strength.

Federal Reserve has confirmed a higher terminal rate than previously anticipated.

European Central Bank might continue its 50 bps rate hike spell despite contracting German Retail Sales.

EUR/USD is expected to deliver a sheer downside amid the formation of an Inverted Flag pattern.

EUR/USD has stretched its recovery above the immediate resistance of 1.0550 in the early European session. The major currency pair attempted recovery from 1.0540 as the US Dollar Index (DXY) surrendered the critical support of 105.20. For building an upside bias, the shared currency pair has to fulfill plenty of filters.

The USD Index has shifted into a volatility contraction phase after Federal Reserve (Fed) chair Jerome Powell’s hawkish remarks-led perpendicular upside. The mighty USD Index is expected to remain sideways further till the release of the United States Nonfarm Payrolls (NFP) data. S&P500 futures have trimmed minor losses, however, the downside bias is still favored as US recession fears are escalating on expectations that Federal Reserve Powell will announce a bigger rate hike in March to press down the recovery move from the Consumer Price Index (CPI).

A consideration of a higher terminal rate than previously anticipated from Federal Reserve Powell has already pushed two-year US Treasury yields to the highest level recorded in 2007. According to DoubleLine Capital LP Chief Investment Officer Jeffrey Gundlach, the bond market is doubling down on the prospect of a US recession after Federal Reserve Chair Jerome Powell warned of a return to large interest rate hikes, prompting the yield on two-year notes to rise to as much as 5.08%. The analyst believes that the Two-year US Treasury yields have not peaked yet, Bloomberg reported.

A further increase in two-year US Treasury yields could dampen interest in growth and technology stocks as investors would be required to discount them with higher rates, which will trim their future cash flows.