EUR/USD pauses the run-up to 1.1400 on sluggish yields, focus on US inflation

EUR/USD grinds higher as traders brace for the key US inflation data during early Wednesday morning in Europe. That said, the major currency pair seesaws around the weekly top of 1.1375, up 0.08% on a day during the second consecutive positive day.

It’s worth observing that cautious sentiment ahead of the all-important US Consumer Price Index (CPI) probes EUR/USD bulls. Even so, downbeat US Treasury yields and the US dollar performance, backed by mixed comments from Fed Chair Jerome Powell and ECB policymakers, keep the pair buyers hopeful.

In addition to the market’s anxiety ahead of crucial data, fears of the coronavirus and its economic impacts also challenge the EUR/USD pair’s upside momentum during the sluggish day.

Fed’s Powell showed readiness to inflate the benchmark rate but comments stating that the balance sheet runoff could happen "perhaps later in the year," seemed to have underpinned the US Dollar Index’s (DXY) 0.35% daily fall the previous day. On the same line was Powell’s expectations that the supply crunch will ease somewhat and the economic impact of the Omicron variant will be short-lived.  It’s worth noting that the DXY refreshed a two-month low earlier during today’s Asian session.

On the other hand, ECB President Christine Lagarde and a new member of the European Central Bank's (ECB) Governing Council and Bundesbank President Joachim Nagel favored the Euro bulls the previous day. While Lagarde tried convincing markets for the ability to take hawkish steps if needed, Nagel argued that the inflation surge in the euro area was not entirely due to temporary factors. However, ECB’s Chief Economist Phillip Lane said in an interview that inflation will fall this year, which in turn restricts EUR/USD upside.

Elsewhere, the World Bank (WB) cited coronavirus woes to cut the global GDP expectations for 2022 to 4.1% from 4.3% previous estimations. Also challenging EUR/USD bulls could be the firmer US inflation expectations, per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, which jumped the most in two months the previous day.

Against this backdrop, the US Treasury yields remain sluggish after recent declines but the equities fail to extend Wall Street gains by the press time.

Although the US CPI for December, expected 7.0% YoY versus 6.8% prior, is expected to dominate EUR/USD moves, Eurozone Industrial Production for November, forecast +0.6% YoY versus 3.3% prior, can offer immediate direction to the pair.

Read: US Inflation Preview: Dizzying heights of 7% would cement a March hike, supercharge the dollar

Technical analysis

EUR/USD pair’s ability to stay beyond 50-DMA, not to forget bouncing off 21-DMA, gains support from the higher lows of the prices and RSI to keep buyers hopeful. However, double tops marked since mid-November around 1.1385 guard the quote’s immediate upside, a break of which will direct EUR/USD buyers towards a multi-day-old descending trend line resistance near 1.1400.

Meanwhile, pullback moves may initially be challenged by the 21-DMA and 50-DMA, close to 1.1335 and 1.1320 in that order, ahead of an ascending support line from December 15, near 1.1290.