EUR/USD renews fortnight low with eyes on 1.0420, focus on EU/US inflation

EUR/USD bears take a breather around mid 1.0400s, pressured near 1.0440 by the press time, as sour sentiment joins anxiety ahead of the Fed’s preferred inflation version. The latest inaction, however, could be linked to the general market dormancy during the initial hours of the Asian session.

Risk appetite remains weak as traders fear that the central bankers’ aggression will lead to a slowing of economic growth. Adding to the sour sentiment were geopolitical and trade-linked fears surrounding Russia and China.

Fed Chairman Jerome Powell mostly repeated his latest pledge to battle inflation with readiness to announce another 0.75% rate hike if needed. The Fed Boss also praised the US economic strength and helped the US dollar to remain firmer.

ECB President Christine Lagarde, on the other hand, signaled chances of a heavier rate increase in September while also expecting positive growth rates. However, ECB Chief Economist Philip Lane warned about a double-sided risk of higher inflation for longer and an upcoming recession, in an interview with CNBC on Tuesday.

Talking about the data, Eurozone Consumer Confidence remained static at around -23.6 for June while preliminary readings of Germany’s Harmonized Index of Consumer Prices eased to 8.2% YoY versus 8.8% expected and 8.7% prior for June.

On the other hand, the final readings of the Q1 US Gross Domestic Product Annualized dropped to -1.6% versus the initial forecasts of -1.5%. The Personal Consumption Expenditure (PCE) Prices, on the other hand, rose more than 7.0% expected and prior readings to 7.1% during the stated period.

It should be noted that the risk-aversion wave drowned Wall Street and the US Treasury yields while fueling the US Dollar Index (DXY).

Looking forward, German Retail Sales for May, expected -2.0% versus -0.4% prior, will precede the Fed’s preferred version of inflation, namely Core PCE Price Index, for May, expected to rise to 0.4% from 0.3% MoM. Given the fears of economic slowdown, a stronger print of inflation-linked data could weigh on the pair.

Also read: US PCE Inflation May Preview: Inflation becomes moot

Technical analysis

A sustained reversal from the 21-DMA, around 1.0560 by the press time, directs EUR/USD bears towards the seven-week-old support line near 1.0420.