EUR/USD approaches 1.1000 as softer yields weigh on USD, focus on Fed, Ukraine

• EUR/USD prints three-day winning streak, mildly bid around daily highs of late.
• Receding covid fears from China, mixed concerns over Moscow-Kyiv talks drag Treasury yields, greenback.
• Softer Eurozone data contrasts mixed US economics, pre-Fed anxiety add to the market’s filters.
• Fed’s 0.25% rate hike is less important than the economic projections, Chairman Powell’s speech.

EUR/USD holds onto the week-start recovery near 1.0970, up 0.13% intraday during early Wednesday morning in Asia. In doing so, the major currency pair cheers the US Treasury yields’ retreat ahead of the key Federal Open Market Committee (FOMC).

Mixed US data and easing inflation expectations seemed to have underpinned the US bond coupon’s latest pullback. That said, US Producer Price Index (PPI) matched YoY expectations of 10% growth whereas NY Empire State Manufacturing Index printed the biggest downside since May 2020. On the other hand, US inflation expectations extended pullback from the record top, as signaled by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data.

Elsewhere, cautious optimism over the Ukraine-Russia peace talks and receding covid woes in China also weigh on the US dollar’s safe-haven demand. Recently, mixed comments from Presidents of Russia and Ukraine over the progress of peace talks and the likelihood of any positive results seem to challenge the US stock futures of late.

It’s worth noting that downbeat prints of Eurozone Industrial Production and ZEW sentiment numbers, for January and March respectively, pushed ECB Governing Council member Pablo Hernandez de Cos to accept the challenge for inflation due to the latest geopolitical plays. “Russian's invasion of Ukraine will have adverse consequences on economic activity and increase inflationary pressures,” said the policymaker. On the same line were comments from European Central Bank President Christine Lagarde even if she said that inflation is still forecast to decline gradually and settle near the central bank’s 2% target by 2024.

Against this backdrop, S&P 500 Futures drop 0.18% to 4,257 whereas the US 10-year Treasury yields snap seven-day uptrend around the highest levels since June 2019, down 1.8 basis points (bps) to 2.145% at the latest. That said, the US Dollar Index (DXY) extends the previous day’s weakness below 99.00 by the press time.

Looking forward, EUR/USD buyers are likely preparing for the Fed’s hawkish outcome as 0.25% is widely anticipated. However, any disappointment over economic projections or via Fed Chair Jerome Powell’s speech will help the bulls to overcome nearby hurdles.

Read: Fed Interest Rate Decision Preview: Is history a guide?

Other than the Fed’s verdict, the US Retail Sales for February, expected to ease to 0.4% from 3.8% prior, as well as comments from ECB board member Frank Elderson, will also be important. Additionally, risk catalysts like covid headlines from China and the Ukraine-Russia news will also direct short-term EUR/USD moves, mostly expected to challenge the bulls.

Read: US Retail Sales Preview: Relentless shopper may provide dollar-selling opportunity ahead of the Fed

Technical analysis

Although the weekly support line defends EUR/USD recovery around 1.0940, buyers need validation from a downward sloping resistance line from February 23, close to 1.1040 by the press time, to retake control.