EUR/USD pares first weekly gain in three around 0.9800 ahead of EU/US inflation data

• EUR/USD retreats from the short-term key hurdle to snap two-day uptrend.
• Market sentiment remains dicey but yields stay firmer amid fears of recession.
• ECB hawks battle upbeat Fedspeak to defend the recovery despite the energy crisis in the bloc.
• Firmer US inflation gauge may add strength to the pullback moves.

EUR/USD takes offers to renew intraday low around 0.9800 as bulls take a breather after a two-day uptrend around the weekly top. Even so, the major currency pair remains positive on a weekly basis, snapping a two-week downtrend. The quote’s latest weakness could be linked to the cautious sentiment ahead of the key inflation numbers from Eurozone and the US.

Eurozone is up for publishing the preliminary inflation data for September. The CPI and HICP figures become all the more important after Germany refreshed the record high during the previous day and the European Central Bank (ECB) policymakers are ready to inflate the benchmark rates even at the risk of a recession.

Among the key policymakers were Olli Rehn, Mario Centeno and Pablo Hernandez de Cos, who have recently backed the idea of increasing the benchmark rate by 0.75%. “ECB policymakers voiced more support on Thursday for another big interest rate hike as inflation in the euro zone's biggest economy hit double digits, blasting past expectations and heralding another record reading for the bloc as a whole,” said Reuters in this regard.

It should be noted that Germany’s Consumer Price Index (CPI) rose to 10% in September compared to 7.9% in August and the market expectation of 9.4. Additionally, the Harmonised Index of Consumer Prices (HICP) for the nation, the European Central Bank's (ECB) preferred gauge of inflation, jumped to 10.9% during the stated month compared to 8.8% prior and 10% expected. Furthermore, Eurozone Economic Sentiment Indicator (ESI) declined to 93.7 in September versus the market expectation of 95 and 97.3 in August. Also, the Consumer Confidence for the said month matched -28.8 forecasts and prior readings.

On the other hand, the US economic calendar has the Fed’s preferred inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index for August, expected 4.7% YoY versus 4.6% prior.

Also read: US August PCE Inflation Preview: Will it trigger a dollar correction?

It should be that the US Weekly Initial Jobless Claims dropped to 193K for the period ended on September 24, versus the 209K previous (revised from 213K) and the market expectation of 215K, also might have weighed on the DXY. The US Jobless Claims slumped to the lowest levels since April.

While respecting the data, St. Louis Federal Reserve Bank President James Bullard praised the slump in the weekly Initial Jobless Claims and mentioned, "We will push inflation to 2% in a reasonable compact time frame." Elsewhere, Federal Reserve Bank of Cleveland President Loretta Mester said on Thursday that they are not yet at a point where they could start thinking about stopping interest rate hikes, as reported by Reuters. Additionally,  San Francisco Fed President Mary Daly said that she expects to raise rates further in coming meetings, and early next year.

Elsewhere, the chatters over China’s inability to tame recession woes and the UK’s fears of more economic pain, as well as the Russia-EU tussles, weigh on the EUR/USD prices and the market’s sentiment.

Amid these plays, US 10-year Treasury yields remain firmer around 3.80% during the seven-week uptrend despite reversing from the 12-year on Wednesday while the S&P 500 Futures fade recovery from the multi-month low.

To sum up, the EUR/USD pair is portraying the typical pre-data caution and can witness further downside if the US inflation figures offer a positive surprise.

Technical analysis

EUR/USD recently eased from the four-month-old support-turned-resistance, as well as the downward sloping resistance line from September 13, amid impending bull cross on the MACD and steady RSI (14). As a result, the buyers stay hopeful but need validation from 0.9830.

On the contrary, the pair’s pullback moves may initially aim for the 10-DMA support near 0.9795 before targeting the 0.9690-75 support area.