EUR/USD bears flex muscles above 1.1400, focus on EU Economic Forecasts, US Inflation

• EUR/USD retreats from intraday top, challenges the previous day’s rebound from weekly low.
• Yields dribble, stock futures print mild losses ahead of the key events.
• ECB policymakers contrasted Fed speakers, draft EU forecast suggests softer inflation, GDP growth.
• High hopes from US CPI for January can disappoint pair sellers.

EUR/USD nullifies early Asian session gains while dropping back to 1.1425 heading into Thursday’s European session.

The major currency pair’s prior gains could be linked to the broad US dollar weakness. However, the market’s anxiety ahead of the key US Consumer Price Index (CPI) data and quarterly release of the European Commission Economic Forecasts seem to challenge the buyers of late.

That said, Bloomberg claims to have seen a draft report for the EU economic forecasts suggesting inflation is likely to ease in 2023 while the GDP may improve. That said, the growth figures are cut in 2022 by 0.3% to 4.0% whereas inflation figures are likely to arrive at 3.5% for the current year.

“Euro-area inflation will ease below the European Central Bank’s 2% target next year, according to new draft projections from the European Union that will feed the growing debate about how quickly to raise interest rates,” said Bloomberg.

On the other hand, the White House (WH) conveyed expectations of a higher YoY inflation figure while also saying, “Its irrelevant month on month number will continue trending lower the rest of the year.” Following that, WH Economic Adviser Brian Deese said that he sees reason to think that factors boosting inflation will moderate over time.

It’s worth noting that the European Central Bank (ECB) Executive Board Member Isabel Schnabel said, “Inflation will remain high for longer than anticipated.” However, her comments like, “Raising rates would not lower energy prices,” seem to challenge ECB hawks. On the same line were comments from Bundesbank President and ECB Board Member Joachim Nagel. ECB”s Nagel said, "First step would be to end bond purchases, then rates could already rise in 2022."

Amid these plays, the US Treasury yields remain sidelined after stepping back from the highest levels since July 2019 whereas stock futures in the US and Europe print losses.

Even if the Bloomberg article reduced the importance of the EU Economic Forecasts, the final verdict is still awaited and hence becomes important for the EUR/USD traders. Should the economics keep suggesting blurry pictures ahead, the quote may witness further downside.

Above all, US inflation data for January, expected 7.3% YoY versus 7.3% prior, will be crucial considering the high hopes from the CPI data, also due to chatters over 0.50% Fed rate hike in March.

Read: US Inflation Preview: Core CPI above 6% could spark next dollar rally

Technical analysis

A three-month-old horizontal area surrounding 1.1485 restricts short-term EUR/USD upside ahead of October 2021 low near 1.1530.

Alternatively, highs marked in November and December of 2021, near 1.1385, put a floor under the pair’s immediate declines.