EUR/USD bears flirt with 1.0600 with eyes on Fed’s preferred inflation gauge

EUR/USD stays indecisive around 1.0600, depressed near 1.0585 by the press time, as bears struggle to retake control after a two-day downtrend but the ECB hawks defend buyers.

The major currency pair portrayed the four-week north-run in the last as the European Central Bank (ECB) appeared more hawkish than the Fed. Also likely to have favored the pair buyers could be the softer US data. However, recently cautious sentiment and comments suggesting higher Fed rates, from the Fed officials, challenge the quote ahead of the key US data.

That said, hawkish comments from the Presidents of the Federal Reserve Bank of Cleveland and New York recently challenged the EUR/USD pair buyers. New York Fed President John Williams said that it was possible for the FOMC to hike more than the terminal rate projected in the dot plot. On the same line, Cleveland Fed President Loretta Mester said her estimate for interest rates is higher than that of her colleagues and the central bank needs sustained tight policy to defeat inflation.

ECB’s President Christine Lagarde’s clear signals for more rate hikes, by saying, "Obvious that we should expect 50 bps hikes for period of time," seemed to have propelled the Euro pair in the last week the most. This contrasts with the hawkish expectations from the Fed as the US central bank also tried to defend the higher rates despite failing to convince the markets.

That said, the softer prints of the US PMIs contrast with the firmer EU data to also underpin the EUR/USD run-up. On Friday, the US S&P Global Manufacturing PMI dropped to 46.2 from 47.7 in November, as well as the market expectation of 47.7. Further, S&P Global Services PMI declined to 44.4 in December's flash estimate from 46.2 in November and market expectation of 46.8.

On the other hand, Eurozone Manufacturing PMI from S&P Global arrived at 47.8 in December versus. 47.1 expectations and 47.1 last, printing a three-month top. Further, the bloc’s Services PMI refreshed a four-month high while printing 49.1 in December compared to 48.5 expected and November’s 48.5.

Looking forward, Friday’s US Core Personal Consumption Expenditures (PCE) - Price Index for November, expected 4.6% YoY versus 5.0% prior, will be crucial for the EUR/USD pair traders. The reason could be linked to the Fed’s preference for the said data as the inflation gauge. Should the inflation number arrive as hot, the recently hawkish comments from the Fed policymakers could be materialized, which in turn can exert downside pressure on the EUR/USD prices.

Technical analysis

A sustained break of the five-week-old support line, now resistance near 1.0645, keeps EUR/USD bears hopeful.