EUR/USD pullback jostles with 1.0950 as central banks, Fed Powell propel US Dollar, PMI in focus

EUR/USD bears attack short-term key support as the quote struggles to extend the previous day’s reversal from a seven-week top near 1.0950 amid the early hours of Friday’s Asian session. The Euro pair dropped the most in three weeks the previous day while taking a U-turn from the highest levels since early June, despite the upbeat Eurozone statistics, as the US Dollar cheered upbeat US Treasury bond yields and hawkish comments from Fed Chair Jerome Powell.

On Thursday, the preliminary readings of Eurozone Consumer Confidence for June improved to -16.1 from -17.4 prior and versus the -17.0 expected. On the other hand, US Chicago Fed National Activity Index for May dropped to -0.15 versus 0.0 expected and upwardly revised 0.14 previous readings. Further, the Initial Jobless Claims reprinted the 264K figures (revised) for the week ended on June 16 compared to 260K market forecasts. It’s worth noting that the Continuing Jobless Claims dropped unexpectedly to 1.759M from 1.772M (revised) prior and 1.782M analysts’ estimations. Additionally, US Existing Home Sales marked a surprise recovery by 0.2% MoM for May compared to -0.6% expected and -3.2% prior (revised from 3.4%).

More importantly, a slew of central banks announced interest rate increases on Thursday. Among them, the majority crossed the market consensus but failed to impress respective currencies on fears that the broad rate hikes have an economic toll, which in turn directs the market players toward the US Dollar’s haven demand.

That said, the Bank of England (BoE), informally known as the “Old Lady”, surprised markets by lifting benchmark rates by 50 basis points (bps) to 5% versus major expectations favoring a 0.25% rate hike. Further, the Swiss National Bank (SNB) matched market forecasts while announcing 25 basis points increase in its benchmark interest rate, to 1.75%. This was the fifth consecutive rate lift from the Swiss central bank. Additionally, the Central Bank of the Republic of Türkiye (CBRT) hiked rates for the first time since August 2021 whereas the Norges Central Bank announced rate increases.

Elsewhere, Fed Chairman Jerome Powell repeated most of his previous day’s remarks during his testimony 2.0, this time in front of the Senate Housing Committee. However, his statements like, “(It) will be appropriate to raise rates again this year, perhaps two more times,” allowed the US Dollar to refresh the intraday high while eyeing to reverse Wednesday’s losses.

On the same line, Federal Reserve (Fed) Governor Michelle Bowman said that "Additional policy rate increases" will be needed to reach a sufficiently restrictive level and control inflation.

However, the recent downbeat comments from Thomas Barkin, President of the Federal Reserve Bank of Richmond, prod the EUR/USD bears as the policymaker showed readiness to vote for rate cuts on conviction of a slowdown in inflation.

Against this backdrop, the Wall Street benchmark closed mixed but the US Treasury bond yields were firmer. That said, the US 10-year and two-year Treasury bond yields rose the most in a week to 3.80% and 4.79% in that order.

Moving on, EUR/USD traders should pay attention to the US, Germany and Eurozone preliminary PMIs for June for clear directions. Should the EU data keeps printing softer figures, the Euro pair’s latest retreat will extend.

Technical analysis

The nearly overbought RSI conditions challenge the EUR/USD buyers as they reverse after failing to cross the February month’s high of 1.1033. However, a three-week-old ascending support line, close to 1.0950, puts a floor under the prices of the Euro pair for the short term.