EUR/USD picks up bids towards 1.0550 ahead of German IFO data, recession in focus

EUR/USD renews intraday high near 1.0530 as it eyes to snap three-week downtrend during Friday’s Asian session. The major currency pair’s latest gains could be linked to the US dollar’s weakness as traders rush towards Treasury bonds amid recession fears.

That said, the US Dollar Index (DXY) seesaws around 104.40, after snapping the three-day downtrend the previous day. Even so, the greenback gauge remains on the way to posting the first weekly loss in four.

Fed Chair Jerome Powell’s concern for recession joined downbeat US PMI data to favor the greenback buyers the previous day. However, the mentioning of inflation and recession woes as the challenges to ensure a smooth landing, despite expecting firmer growth this year, weigh on the DXY.

It’s worth noting that downbeat US PMIs also added to the risk-aversion and fuelled the US dollar’s safe-haven demand. S&P Global Services PMI for the US slumped to 51.6 in June from 53.4 prior, not to forget missing the 53.5 forecasts. Further, the Manufacturing PMI not only missed the market expectation of 56 by a wide margin in June, to 52.4 versus 57.00 prior, but also slumped to a nearly two-year low.

On the other hand, German Economy Minister Robert Habeck rang the alarm of gas shortages by announcing a move to stage two of its three-stage gas plan amid reduced Russian flows. Additionally, the European Central Bank (ECB) published Economic Bulletin on Thursday, underscoring challenges to the economy from higher inflation. The ECB Bulletin also mentioned, “The Governing Council will make sure that inflation returns to its 2% target over the medium term.”

It’s worth noting that Governing Council member and German central bank head Joachim Nagel mentioned on Thursday that "The risk of inflation expectations becoming de-anchored has risen over the past months." The policymaker also said, "If monetary policy falls behind the curve, even stronger hikes in interest rates could become necessary to get inflation under control.”

Despite the market’s pessimism, the Wall Street benchmarks closed positively due to the downbeat Treasury yields. However, the S&P 500 Futures rise 0.30% while the US 10-year Treasury yields remain firmer around 3.09%, after dropping to a fortnight low the previous day.

Looking forward, Germany’s IFO numbers for June will be crucial after the bloc’s powerhouse signaled fears of an energy crisis. That said, the IFO – Business Climate is expected to ease to 92.9 from 93.0 while the Current Assessment is also likely to weaken to 99.0 from 99.5. However, the IFO – Expectations are likely to improve to 87.4 from 86.9, which in turn can help the EUR/USD buyers.

In addition to the German IFO numbers, US New Home Sales for May and comments from ECB Vice President Luis de Guindos also appear important for short-term EUR/USD directions.

Technical analysis

Given the sluggish MACD signals and steady RSI, coupled with the quote’s ability to recover from important supports, the EUR/USD pair is likely to run towards the 200-SMA hurdle surrounding 1.0585.

Among the key supports, the 50-SMA and horizontal area comprising multiple levels marked since mid-May., respectively near 1.0495 and 1.0470-60, gain major attention.