- EUR/USD pares the biggest daily gains in two weeks.
- ECB's Schnabel sounds hawkish but not as much as Fedspeak, US data came in mixed.
- Market’s cautious optimism weighs on yields but USD buyers stay hopeful.
- Headlines from Russia, Eurozone Industrial Production also need attention for clear guide.
EUR/USD takes offers to refresh daily low near 1.1345, down 0.11% intraday, as the pair traders consolidate the heaviest daily jump in a fortnight during Wednesday’s Asian session.
The major currency pair sellers seem to respect the market’s cautious optimism while tracking the latest developments surrounding Russia, as well as mixed concerns over the US Federal Reserve’s (Fed) next move.
In doing so, the quote ignores upbeat comments from European Central Bank (ECB) Executive Board Member Isabel Schnabel, published on Financial Times (FT) during the late Tuesday. The policymakers said, per FT, “The risk of acting too late has increased." On the same line were fears of higher inflation raised by the ECB’s Economic Bulletin.
The reason could be linked to the escalating odds of the Fed’s 0.50% rate hike in March, as well as firmer US inflation expectations portrayed by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data. That said, the BOE FedWatch Tool signals around 60% probabilities of 50 basis points (bps) of rate lift in March but the Reuters’ poll highlights the indecision. “The US Federal Reserve will kick off its tightening cycle in March with a 25-basis-point interest rate rise, but a growing minority say it will opt for a more aggressive half-point move to tamp down inflation,” said Reuters.
The latest US data, however, came in mixed as the US Producer Price Index (PPI) data showed a hot factory-gate inflation figure supporting the Fed’s rate-hike concerns. That said, the PPI rose past 9.1% YoY expectations to 9.7%, versus upwardly revised 9.8% prior, in January whereas the Producer Price Index ex Food & Energy, also known as Core PPI, rallied to 8.3% versus 7.9% market consensus. Additionally, NY Empire State Manufacturing Index eased below 12.15 forecasts to 3.1, compared to -0.7 previous readouts.
Elsewhere, hopes of no further escalation in the Russia-Ukraine tussles, after Moscow rolled back some of its troops from borders, seem to weigh on the US Treasury yields. However, the US stock futures struggle to follow the Wall Street benchmarks’ gains. It should be noted that the US Dollar Index (DXY) defends the 96.00 threshold despite downbeat yields, mainly due to the market's anxiety.
Looking forward, Eurozone Industrial Production for December, expected 0.3% MoM versus 2.3% prior, will offer immediate clues ahead of the January Retail Sales from the US, expected to reverse -1.9% previous contraction with +2.0% growth. Also important will be the Federal Open Market Committee (FOMC) Minutes as traders jostle over 0.50% rate-hike clues.
Read: FOMC Minutes Preview: Dollar selling opportunity? Doves set for a comeback after hawkish meeting
Technical analysis
Failures to print a clear daily closing beyond the 50-day EMA, around 1.1355 by the press time, favor EUR/USD sellers to aim for multiple support levels around 1.1280.