- EUR/USD fades two-day rebound, remains sidelined of late.
- Growth, inflation fears weigh on prices but hawkish expectations from ECB challenge bears.
- ECB’s end to the monetary stimulus and July rate hike signals are the key to watch.
- US CPI for May, risk catalysts act as additional downside filters.
EUR/USD aptly portrays the pre-ECB indecision as it dribbles around 1.0715-20 during Thursday’s Asian session. In doing so, the major currency pair fails to extend the previous two-day recovery amid mixed catalysts and sour sentiment.
The pair’s latest gains could be linked to the hawkish expectations from the European Central Bank (ECB) amid the skyrocketing inflation. “ECB tightening expectations have picked up ahead of tomorrow’s decision. WIRP suggests liftoff July 21 remains fully priced in,” said Brown Brothers Harriman (BBH) in their latest report.
Also keeping the EUR/USD prices firmer is the cautious mood ahead of this week’s US Consumer Price Index (CPI) data for May, especially after the softer prints of the Fed’s preferred inflation gauge, namely the Core PCE Price Index. That said, US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, stay firmer around the one-month high of late.
Alternatively, fears that faster monetary policy normalization will weigh on the economic transition, mainly due to the recent covid and geopolitical woes, seem to have challenged the EUR/USD pair’s an upside.
On Wednesday, White House spokeswoman Karine Jean-Pierre said they expect the inflation numbers to be released at the end of the week to be elevated. Additionally, the Organisation for Economic Co-operation and Development (OECD) cuts the global growth outlook for 2022 while World Bank (WB) President David Malpass warned that faster-than-expected tightening could recall a debt crisis similar to the one seen in the 1980s.
It’s worth noting that the Wall Street benchmarks snapped a two-day rebound whereas the US 10-year Treasury yields rose 5.3 bps to 3.027% to portray the risk-off mood and weigh on EUR/USD prices.
Looking forward, all eyes will be on the ECB as the regional central bank will be the last among the majors to end the stimulus. Market players expect hints of a July rate hike and an absence of bleak economic forecasts to challenge the currency pair’s weekly losses.
Also read: ECB Preview: Laying groundwork for rate hikes but EUR/USD could still fall
Technical analysis
A weekly symmetrical triangle restricts the EUR/USD pair’s immediate moves between 1.0745 and 1.0660. Adding strength to the upside filter is the four-month-old resistance line.
