EUR/USD grinds at five-week top around 1.0950 as Euro bulls seek more clues of ECB vs. Fed play

EUR/USD makes rounds to 1.0950 as bulls catch a breather after a stellar run-up, the biggest since early February, amid sluggish hours of Friday’s Asian session. In doing so, the Euro pair also portrays the market’s need for more clues to defend the hawkish bias about the European Central Bank (ECB), as well as to confirm the doubts about the Federal Reserve’s (Fed) July rate hike.

That said, the European Central Bank (ECB) matched market forecasts by announcing a 25 basis points (bps) interest rate hike. More importantly, ECB President Christine Lagarde advocated for a July rate hike and ruled out rate cuts to allow the European Currency (Euro or EUR) to drum the victory over the previous day’s Federal Reserve’s (Fed) hawkish halt.

On the negative side, the ECB’s latest growth projections marked a softer economic run-up for 2023 and 2024 than previously estimated whereas ECB President Lagarde also stated that both growth and inflation are quite unpredictable.

On the other hand, the mixed US data and the Fed’s first status quo after fueling the rates in the last 10 consecutive meetings prod the US Dollar. With this, the US Dollar Index (DXY) bears take a breather at the lowest levels in over a month, flirting with 102.10 of late, after falling the most in three months by the press time.

Talking about the data, US Retail Sales growth marks an increase of 0.3% for May versus -0.1% expected and 0.4% previous readings while the Core readings, mean Retail Sales ex Autos, match 0.1% market forecasts for the said month, compared to 0.4% prior. Further, NY Fed Empire State Manufacturing Index jumps to 6.6 in June versus -15.1 expected and -31.8 prior whereas Philadelphia Fed Manufacturing Index drops to -13.7 for the said month from -10.4 prior and compared to -14 market forecasts. Additionally, US Industrial Production for May cools down to -0.2% against 0.1% estimated and 0.5% prior while Initial Jobless Claims reprints the upwardly revised figures of 262K for the week ended on June 09 versus 249K expected.

Following the data, the CME’s FedWatch Tool, market players place nearly 67% bets on the July Fed rate hike of around 25 basis points (bps). The same depicts the traders’ lack of conviction in the Federal Reserve’s (Fed) almost clear signals for a hawkish move in July.

Against this backdrop, Wall Street benchmarks rallied more than 1.0% each whereas the US 10-year Treasury bond yields plummeted to 3.72%. Further, the US Dollar Index (DXY) dropped the most in three months while poking the lowest levels since May 12, to 102.15 at the latest.

Looking ahead, the final readings of Eurozone inflation data for May, as per the Harmonized Index of Consumer Prices (HICP) details, will precede the preliminary readings of the Michigan Consumer Sentiment Index (CSI) for June and five-year inflation expectations to direct immediate EUR/USD moves. Above all, bond market moves and the central bank clues should be eyed closely for clear direction.

Technical analysis

The nearly overbought RSI (14) line suggests a pullback in the EUR/USD price towards the 50-DMA support of around 1.0880.