EUR/USD trades flat near 1.0800 in quiet start to week, though bearish themes remain in focus

• EUR/USD is flat at the start of the week near 1.0800 with European markets still shut.
• But recent bearish themes (hawkish Fed, Russo-Ukraine war) remain in play.
• As a result, bears continue to eye a near-term test of 2020 lows in the 1.0600s.

In a quiet start to the week for global markets given the fact that European participants are still away for Eastern holiday celebrations, EUR/USD is little moved in the 1.0800 area. However, with US yields printing fresh multi-year highs in pre-US open trade and European bond markets shut, yield divergence during US trading hours risks sending the pair back towards last week’s lows in the 1.0750s.

Traders continue to cite recent hawkish commentary from Fed policymakers as the main driver of recent upside in US yields and the US dollar. This contrasted to last week’s ECB meeting, where the bank left its policy guidance and tone on the economy unchanged, disappointing some expectations for a hawkish shift, in language at the very least.

This backdrop of increasing policy divergence may continue to weigh on EUR/USD this week, traders have said, adding that the ongoing Russo-Ukraine war continues to further dent the euro’s appeal. Technicians have marked out the 2020 lows at 1.0636 as the next key area of support that EUR/USD is likely headed towards.

Fed and ECB rhetoric will likely be the main fundamentals drivers of the pair this week, with ECB President Christine Lagarde and Fed Chair Jerome Powell scheduled to appear alongside one another on Thursday. Friday sees the release of flash April PMI surveys from the Eurozone and US which should make for interesting reading.