EUR/USD finds cushion near 1.0760 as USD Index faces pressure, Federal Reserve Powell’s speech eyed

• EUR/USD has shown some recovery from 1.0760 as the USD Index is struggling in extending its recovery.
• The street is anticipating that the Federal Reserve will pause the policy-tightening process as US inflation is consistently softening.
• European Central Bank President Christine Lagarde has already confirmed more than one interest rate hike is appropriate.
• EUR/USD is declining towards the 61.8% Fibonacci retracement at 1.0738.

EUR/USD has witnessed some buying interest after printing a fresh intraday low at 1.0760 in the Asian session. The major currency pair is still on tenterhooks as the US Dollar Index (DXY) has not delivered a reversal move yet. The USD Index has regained traction ahead of the speech from Federal Reserve (Fed) chair Jerome Powell.

S&P500 futures have added significant gains in the Asian session. US equities witnessed stellar buying interest in the past two trading sessions, portraying upbeat market sentiment. Investors were pumping money into stocks amid rising expectations that the US debt-ceiling raise will get approved by the weekend.

The US Dollar Index is facing pressure in extending its recovery above the immediate resistance of 103.60. The optimism over the US borrowing cap raise is consistently supporting the US Treasury yields. The yields offered on 10-year US government bonds are sustaining above 3.65%.

Democrats urge US Biden to exercise 14^th Amendment to avoid bipartisan

Speak Joseph McCarthy agreed to raise the US debt-ceiling limit against a compromise for spending initiatives to reduce the further budget deficit. US President Joe Biden and other leaders admitted the increase in US borrowing cap limit and spending initiatives a disaster and agreed to a bipartisan. However, other Democratic leaders have urged US President Joe Biden to exercise his 14^th Amendment right in which the President has the authority to pass a green note to pay the nation’s debts regardless of the debt limit Congress, if negotiations didn’t work out.

In response to that, US Biden believes that this could prompt legal action and a constitutional crisis, as reported by CNN.

Further negotiations for a US debt-ceiling raise between White House and Republican leaders are scheduled for the weekend, which will be keenly watched.

Federal Reserve Powell’s speech in focus

Before US debt-ceiling negotiations, investors have shifted their focus towards the speech from Federal Reserve Powell, which will provide cues about further monetary policy action for June. The street is anticipating that the Federal Reserve will pause the policy-tightening process as United States inflation is consistently softening, labor market conditions are releasing some heat, and retail demand is stable. According to a poll by Reuters, Federal Reserve’s interest rate at 5.00-5.25% will stay stable by the end of 2023.

More rates by European Central Bank are in pipleline

Inflationary pressures in Eurozone have rebounded in April to 7.0% from the former release of 6.9%. The recent fall in food prices has been offset by higher energy and services prices, which have renewed fears of more interest rate hikes by the European Central Bank (ECB). Investors should note that European Central Bank President Christine Lagarde has already confirmed more than one interest rate hike is appropriate.

Economists at TD Securities have materially upgraded their inflation forecast for the euro area through 2023. They now expect headline inflation to be 3.6% YoY in 23Q4 (ECB: 2.8%) and core inflation to be 4.3% that quarter (we had previously been below 4%).” Also, they suggested that the European Central Bank will continue hiking into the summer, reaching a terminal rate of 4.00% by September.”

EUR/USD technical outlook

EUR/USD is declining towards the 61.8% Fibonacci retracement (placed from March 15 low at 1.0516 to April 26 high at 1.1095) at 1.0738 on a four-hour scale. The shared currency pair is auctioning in the Falling Channel char pattern in which each pullback is considered a selling opportunity by the market participants.

The 20-period Exponential Moving Average (EMA) at 1.0828 is restricting upside for the shared currency bulls.

The Relative Strength Index (RSI) (14) is oscillating in the bearish range of 20.00-40.00, indicating more weakness ahead.