EUR/USD traded lower Tuesday as investors remained focused on dollar strength following last week's extraordinarily strong U.S. jobs report, and further downside seems likely as options and technicals heighten the bearish influences.
EUR/USD risk reversals EUR1MRR=FN indicate vol premiums for puts over calls have increased and trade at levels not seen since early December.
Options investors appear to be hedging for EUR/USD downside by buying EUR put/USD call options with downside strikes nL1N34N13D.
Technicals highlight downside risks.
Daily and monthly RSIs are falling and aren't oversold, which implies downside momentum is intact.
EUR/USD is trading below the falling 10- and 21-day moving averages and the 10-DMA is poised to cross below the 21-DMA, which could send another bearish signal.
February's monthly inverted hammer candle and the recent break below the up trend line off November's low reinforce bearish signals.
Rhetoric from the Fed suggests rate hikes will persist and may go higher than expected nFWN34M2TXnW1N32Z014, which is likely to underpin the dollar for now.
Unless Fed rhetoric takes a less hawkish stance EUR/USD should remain heavy.
Focus remains on U.S. CPI USCPF=ECI due Feb.
An upside surprise could send EUR/USD much lower.
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