EUR/USD rebound approaches 1.0750 amid sluggish markets, ECB, Fed talks in focus

EUR/USD licks its wounds around 1.0735 while probing bears at the monthly low, after a three-day dominance, during early Tuesday. In doing so, the major currency pair portrays the market’s indecision ahead of the key events, namely speeches from the European Central Bank (ECB) and Federal Reserve (Fed) officials.

The Euro failed to cheer hawkish ECB speak and firmer Eurozone data on Monday as it dropped to the lowest levels since January 09 amid a broad US Dollar recovery.

 “The risk of doing too little dwarfs the risk of overtightening policy,” European Central Bank (ECB) policymaker Robert Holzmann said on Monday.

Talking about the data, the Eurozone Sentix Investor Confidence index improved further to -8.0 in February from -17.5 in January vs. -12.8 expected. On the same line, Eurozone Retail Sales arrived at -2.8% YoY in January vs. -2.7% expected and -2.5% prior. Furthermore, German Factory Orders growth jumped to 3.2% MoM following an upwardly revised 4.4% fall in December and 2.2% market forecasts.

On the other hand, the US economic calendar was mostly silent but growth optimism by US Treasury Secretary Janet Yellen and President Joe Biden joined hawkish Fed talks to propel the US Treasury bond yields, as well as the US Dollar. “The strong labor market probably means ‘we have to do a little more work,’” said Federal Reserve Bank of Atlanta President Raphel Bostic in an interview with Bloomberg.

That said, a dash on the US diplomatic visit to Beijing and China’s harsh reaction to the US shooting down its balloon by terming it a spying attempt triggered the market’s risk-off mood and weighed on the EUR/USD pair the previous day. However, the latest comments from US President Joe Bide appear soothing on the matter as he said, “The balloon incident does not weaken US-China relations.”

Against this backdrop, S&P 500 Futures print mild gains, but the US 10-year Treasury bond struggled for clear directions around 3.63%, after a two-day rebound from the monthly low.

Looking forward, sluggish markets and pre-event anxiety may restrict immediate EUR/USD moves ahead of German Industrial Production for December, a speech from ECB policymaker Isabel Schnabel and Fed Chair Jerome Powell, not to forget US President Joe Biden’s State of the Union (SOTU) comments.

Although the ECB hawks may try to keep the EUR/USD afloat, significant attention will be given to the US policymakers’ statements for clear directions amid hawkish Fed bets.

Technical analysis

A sustained downside break of an ascending trend line from early November, around 1.0850 by the press time, keeps EUR/USD sellers hopeful amid bearish MACD signals and the downbeat RSI (14), not oversold. That said, the pair’s downside towards the 50-DMA, around 1.0690, appears imminent unless the quote stays below 1.0850.