EUR/USD struggles to extend rebound beyond 0.9700, German Inflation, US GDP eyed

EUR/USD bulls take a breather after posting the biggest daily jump in six months during the turnaround Wednesday. That said, the quote treads water around 0.9730-40 during the early Thursday morning in Asia.

The major currency pair began Wednesday on the back foot and refreshed the 20-year low amid broad US dollar strength on the market’s rush for risk-safety. However, the Bank of England’s (BOE) bond-buying plan to restore market confidence joined hawkish comments from the European Central Bank (ECB) policymakers to please the EUR/USD bulls afterward.

That said, the Bank of England (BOE) announced a bond-buying program to defend the British Pound (GBP) on Wednesday. The details suggest that the BOE will buy bonds with a maturity of over 20 years and up to 5 billion sterling worth per auction initially.

On the other hand, ECB President Christine Lagarde reiterated on Wednesday that they will continue to raise rates in the next several meetings, as reported by Reuters. There were several other ECB Governing Council members namely Olli Rehn, Peter Kazimir and Robert Holzmann who openly favored a 0.75% rate hike in the next meeting.

Elsewhere, the US international trade deficit narrowed by $2.9 billion to $87.3 billion in August from $90.2 billion in July. Details suggest that the Exports dropped for the first time since January while Imports marked the fifth consecutive monthly decline. Further, Atlanta Fed President Raphael Bostic said on Wednesday that the baseline scenario right now includes a 75 basis points (bps) rate hike in November and a 50 bps increase in December, as reported by Reuters.

It should be noted that the European Commission President Ursula von der Leyen announced on Wednesday that they will propose new import bans on Russian products that will deprive Russia of another €7 billion in revenue, as reported by Reuters.

Amid these plays, the bond yields slumped and allowed equities to consolidate recent losses, which in turn dragged the US Dollar Index (DXY) from the multi-year high.

However, the hawkish Fed and the West versus Russia tussles, as well as likely inflation fears in the bloc, could keep the EUR/USD traders on their toes. As a result, today’s German inflation gauge and the final readings of the US Q2 Gross Domestic Product (GDP) will be crucial for immediate direction. That said, firmer numbers are likely to favor more to the US dollar than the EUR.

Technical analysis

Although an upside break of the one-week-old resistance line, now support near 0.9620, favors EUR/USD buyers, a convergence of the one-month-old previous support and the 50-SMA on the four-hour chart, near 0.9800, challenges the upside momentum.