EUR/USD renews monthly low below 1.0700 amid ECB, Fed chatters, focus on EU GDP, US inflation

EUR/USD licks its wounds around 1.0670, after declining to the five-week low, as traders await more catalysts to confirm the latest bearish bias. Adding strength to the recovery moves could be the recent consolidation in the market’s sentiment after US General’s comments. However, the European Central Bank (ECB) official’s dovish comments contrast with comparatively upbeat statements from the Federal Reserve (Fed) policymaker to keep the pair sellers hopeful ahead of the key growth and inflation data from the Eurozone and the US in that order.

The US General turned down the market’s fears of Chinese spying on the US and the likely rush towards the safe havens by saying, “(We) have no reason to think latest objects are Chinese.” Even so, the fact that the US shot down nearly four such objects while China prepares to hit one keeps the matters on the geopolitical table and weigh on the sentiment.

Earlier in the day, Governing Council member Ignazio Visco mentioned that the ECB must avoid pushing real interest rates too high, given the level of private and public debt in the euro area. The same joins the recently downbeat comments from the ECB policymakers and fears of recession inside the bloc to weigh on the EUR/USD.

On the other hand, Philadelphia Federal Reserve President Patrick Harker pushed back the chatters of a Fed rate cut during 2023. However, the policymaker did mention, “Fed not likely to cut this year but may be able to in 2024 if inflation starts ebbing.”  Comments from Fed’s Harker were in line with Fed Chairman Jerome Powell and Richmond Federal Reserve (Fed) President Thomas Barkin who previously refrained from cheering upbeat US jobs report.  Previously, the majority of the Fed Governors and the US diplomats, including US President Joe Biden and Treasury Secretary Janet Yellen, ruled out US recession concerns and appear hawkish for the Fed. Hence, there prevails a dilemma among the Fed policymakers which in turn makes this week’s US inflation data all the more important.

On Friday, the US inflation expectations per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) remain firmer around the monthly highs marked in the last week. Further, preliminary readings of the US University of Michigan (UoM) Consumer Sentiment for February rose to 66.4 versus 65.0 expected and 64.9 prior. Further, the UoM noted that the year-ahead inflation expectations rebounded to 4.2% this month, from 3.9% in January and 4.4% in December.  “Long-run inflation expectations (5-year) remained at 2.9% for the third straight month and stayed within the narrow 2.9-3.1% range for 18 of the last 19 months,” stated the UoM.

Amid these plays, the S&P 500 Futures fade the previous day’s corrective bounce off a one-week low, down 0.50% around 4,080 at the latest, whereas the US 10-year Treasury yields remain sidelined near 3.73% after refreshing a five-week high the previous day.

As a result, the US Dollar stays firmer due to its safe-haven appear. However, cautious mood ahead of the key US Consumer Price Index (CPI) for January and the preliminary readings of the Eurozone fourth quarter (Q4) Gross Domestic Product, up for publishing on Tuesday, seem to probe the EUR/USD bears.

Technical analysis

EUR/USD needs a clear downside break of the ascending support line from November 30, 2022, around 1.0660, to convince sellers.