- EUR/USD remains on the back foot near intraday low.
- Downbeat Treasury yields put a bid under the US dollar.
- Sino-American headlines, G7 and Brexit can act as extra catalysts.
- ECB eyed for economic outlook, US CPI needs stronger-than-forecast print to keep USD afloat.
EUR/USD pares weekly gains near 1.2165, down 0.10% intraday, heading into the Super Thursday’s European session. Escalating market anxiety ahead of the ECB action and the US Consumer Price Index (CPI) joins mixed chatters over US-China ties and Brexit, not to forget G7 communiqué leak, to weigh on the major currency pair by the press time.
Inflation woes supersede less-expected ECB action…
Given the mixed plays of the US inflation expectations and early signals for the price pressure gauge, markets are divided over today’s CPI even as a higher-than-previous figure is on the cards. That said, US inflation expectations, as measured by the 10-year breakeven inflation rate, per the St. Louis Federal Reserve (FRED) data, print a six-day downtrend by the end of Wednesday’s forecasts. In doing so, the inflation precursor slumps to the lowest since April 20. On the contrary, the latest Core Personal Consumption Expenditures (PCE) Price Index data, the Fed’s preferred gauge of inflation already signaled a strong inflation outcome.
While the mismatch is mostly priced in, the lack of sync among the US Federal Reserve (Fed) policymakers throughout inflation run-up and the amount of risk it carries for the world’s largest economy sours the market mood before the key data release.
Forecasts suggest, the headline CPI to jump from 4.2% to 4.7% in May while the more followed measure, CPI ex Food & Energy (Core CPI), is likely to rise from 3.0% to 3.4% YoY for the stated period.
Read: US CPI May Preview: Inflation angst is coming
On the other hand, the divide among the European Central Bank (ECB) board members becomes less interesting even as the Germany-led group backs the tapering. Also, the regional fundamentals are yet to justify the sustained recovery from a pandemic, which in turn dims the importance for today’s ECB where the bank is expected to keep the benchmark rate unchanged at 0.0%, also the Deposit Rate of -0.5%, while holding the bond purchase intact. It should, however, be noted that the economic projections need to confirm ECB President Christine Lagarde’s optimism to favor EUR/USD buyers.
Read: European Central Bank Preview: Why June's decision presents a buy the dip opportunity
Ahead of the release, analysts at the Australia and New Zealand Banking Group (ANZ) said, “An upside miss on the May core CPI could re-ignite some inflation concerns, but US employment is still well below pre-COVID levels, and that will weigh on the minds of FOMC members. The ECB is also expected to keep its policy guidance unchanged at their meeting overnight.”
In addition to the ECB and US CPI, Brexit headlines could also be important for EUR/USD traders as US President Joe Biden meets UK leader Boris Johnson to break the deadlock over Northern Ireland (NI). Also acting as the second-tier catalyst will be the updates relating to the Group of Seven (G7) meeting and the US-China story after the recent trade-positive news.
Technical analysis
EUR/USD portrays a bullish flag chart pattern on the daily (1D) play amid a gradually recovering Momentum line inside the positive territory. The same keeps sellers away even as the current weakness targets 1.2085-80 support confluence, including 50-day SMA (DMA) and the stated flag’s lower line.