EUR/USD on the edge after the drop yesterday

<p>To be fair, Lagarde's speech went about as one would thought it would have. She acknowledged better inflation developments while reaffirming a more data-dependent approach. While she did say that it is fairly premature to discuss rate cuts now, she did mention that one should not be "fixated on the calendar". Adding to that, she defended the possibility of rate cuts "by the summer".</p><p>The euro didn't like it though as traders stepped up bets for a rate cut for April. The odds of a 25 bps reduction in April is now at ~91% after Lagarde's press conference. That is a modest rise in expectations, having been ~72% going into the ECB decision yesterday. The total rate cuts priced in for this year now stand at roughly 141 bps. And that is also higher than the roughly 127 bps priced in before yesterday's main event.</p><p>The euro dropped as a result but in the case of EUR/USD, it is living life on the edge at the moment. The pair continues to find itself holding just above the 200-day moving average (blue line) this week. That key level is now at 1.0842 on the day and that is the major level to watch out for before the close.</p><p>A break below that will see sellers exert more control and look for a test of the 1.0800 mark next. Hold above and we will continue to retain the push and pull action so far this week.</p><p>The price action in the pair is rather muted so far today, with the range being just a measly 10 pips. But given the technical circumstance above, we could expect things to pick up before the end of the week.</p><p>The dollar side of the equation might offer more though with the US PCE price report coming up and also with eyes on the bond market.</p><p>10-year Treasury yields continue to hang in and around its own 200-day moving average at 4.102% and that will be another major technical level to watch as we wrap the week up. A technical break below that will likely dent the dollar's resilience a fair bit more.</p>

This article was written by Justin Low at www.forexlive.com.