EUR/USD struggles near daily low, just below 1.0500 mark amid broad-based USD strength

• EUR/USD came under renewed selling pressure on Friday amid resurgent USD demand.
• Hawkish Fed underpinned the USD, though a combination of factors capped the upside.
• The ECB’s rate hike signal could extend support to the euro and limit losses for the pair.

The EUR/USD pair extended the overnight rejection slide from the 1.0600 mark, or the weekly high and witnessed some selling on the last day of the week. The downward trajectory extended through the early North American session and dragged spot prices below the 1.0500 psychological mark, though lacked follow-through selling.

The US dollar made a solid comeback on Friday and recovered a part of its post-FOMC losses recorded over the past two trading sessions amid hawkish Fed expectations. The markets seem convinced that the US central bank would continue to tighten its monetary policy at a faster pace to combat stubbornly high inflation. The bets were reaffirmed by the Fed's so-called dot plot, showing that the median projection for the federal funds rate stood at 3.4% for 2022 and 3.8% in 2023. This helped revive demand for the greenback, which, in turn, was seen as a key factor exerting downward pressure on the EUR/USD pair.

That said, a combination of factors might hold back the USD bulls from placing aggressive bets and help limit any deeper losses for the EUR/USD pair, at least for the time being. Investors, however, took comfort from the fact that the Fed forecasted the rate to decline to 3.4% in 2024 and 2.5% over the long run. This was evident from the ongoing decline in the US Treasury bond yields, which, along with the risk-on impulse, could act as a headwind for the safe-haven buck. The shared currency could further draw support from the European Central Bank's explicit signal that it would hike interest rates for the first time since 2011 in July.

The mixed fundamental backdrop warrants some caution before positioning for a firm near-term direction ahead of an extended weekend in the US. Hence, it will be prudent to wait for some follow-through selling before confirming that the recent bounce from the vicinity of the YTD low has run its course and place fresh bearish bets.

Technical levels to watch