EURUSD flirts with parity as ECB Bulletin, US inflation data loom

• EURUSD struggles after reversing from two-month high, retreats of late.
• Mixed headlines surrounding key risk catalysts, mostly dovish Fedspeak keep buyers hopeful.
• US inflation expectations drop but those from Eurozone stay firmer of late.
• Bulls can cheer a likely softer US CPI for October if ECB Bulletin paint recession fears with a lighter shade.

EURUSD aptly portrays the market’s anxiety ahead of the key US inflation data during early Thursday. In doing so, the major currency pair fades the late Wednesday’s corrective bounce off 0.9992. It’s worth noting that the quote reversed from a two-month high the previous day amid a broad risk-off mood.

That said, the quote’s latest retreat could be linked to the comments from Minneapolis Federal Reserve (Fed) President Neel Kashkari as he said, per Reuters, “We will do what we need to do to bring inflation back down.”

Though, the previous Fedspeak has been dovish and challenged the US dollar buyers as New York Federal Reserve (Fed) President John Williams previously mentioned that the relatively stable long-term inflation expectations are good news. On the same line, Richmond Fed President Thomas Barkin also mentioned that the Fed’s fight against inflation may lead to a downturn in the US economy but that is a risk that the Fed will have to take.

Downbeat US inflation expectations, as per the 5-year and 10-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, weigh on the US dollar.

On the contrary, the latest European Central Bank (ECB) survey of consumer expectations for inflation stated, “After HICP inflation rose above 2% in July 2021, consumers’ inflation perceptions and expectations started to move upwards too.”

Headlines surrounding Russia also seemed to have favored the latest cautious optimism and probe the EURUSD bears as Russia appears to retreat from the only Ukrainian regional capital captured, namely Kherson. Furthermore, President Vladimir Putin is less likely to attend the upcoming G-20 summit in Bali, starting on November 15. Additionally, a slight reduction in China’s daily covid numbers, from 1,294 to 1,133 in Mainland, joins the receding hopes of Democrats to gain major power share in the US midterm elections to help favor the optimists.

Amid these plays, S&P 500 Futures print 0.20% intraday gains near 3,765, after dropping the most in a week, whereas the US 10-year Treasury yields pause the two-day downtrend near 4.10% at the latest. That said, the Wall Street benchmarks snapped a three-day uptrend the previous day amid fears of US government gridlock, as well as China’s covid woes.

Looking forward, the European Central Bank’s (ECB) monthly Economic Bulletin will be the first catalyst the EURUSD traders should watch amid impending fears of economic slowdown and the policymakers’ readiness for higher rates, as well as the Quantitative Tightening (QT). Following that, US Consumer Price Index (CPI) for October will be crucial as forecasts suggest that the headline CPI will ease to 8.0% YoY from 8.2% prior while the more important Core CPI may remain mostly unchanged near 6.5%, compared to 6.6% previous readings.

Also read: US October CPI Preview: US Dollar to weaken on a CPI-inspired risk rally

Technical analysis

Despite reversing from a two-month-old resistance line, around 1.0065 by the press time, EURUSD bears need validation from the early October swing high, at 0.9999, to tighten the grips.