EUR/USD floats above 1.0900 as bulls and bears jostle over Ukraine crisis, inflation fears

• EUR/USD fades the previous day’s rebound from 22-month low, sidelined of late.
• Softer yields, cautious optimism weigh on DXY as markets await Thursday’s Russia-Ukraine peace talks in Turkey.
• Fears of more economic hardships for the bloc, higher inflation keep EUR bears hopeful.

EUR/USD treads water around 1.0900 as traders take a sigh of relief, at least for now, from the Ukraine-Russia tensions during early Wednesday morning in Europe. Even so, anxiety ahead of Thursday’s key meeting in Ankara and fears of stagflation keeps the pair sellers hopeful.

The major currency pair posted the first positive daily closing in six the previous day as market Ukraine’s retreat from NATO membership joined the confirmation of the first humanitarian corridor in Kyiv to challenge the previous risk-off mood.

Following that, Venezuela’s freeing of the American prisoner and the US hint of easing sanctions afterward also favored the market sentiment and helps the EUR/USD buyers.

However, Russia may not cheer Kyiv’s intention to dump NATO membership on fears of joining the European Union (EU). The same demolishes President Vladimir Putin’s unsaid target of putting Kremlin-controlled leader in Ukraine and can keep the fears of further geopolitical tension on the table. Recently, Russia called for nationalizing foreign-owned factories that shut operations, which in turn raised doubt on the market’s optimism.

While portraying the mood, the US 10-year Treasury yields drop two basis points (bps) to 1.85% whereas the S&P 500 Futures remain firmer on a day at the latest.

Also testing the EUR/USD buyers is the fear of stagflation in the bloc. “The eurozone is particularly dependent on Russian energy and is, therefore, the most exposed to stagflation risks, though the United States isn't immune,” said Reuters.

Meanwhile, upbeat prints of German Industrial Production (IP) for January versus softer US economics favor EUR/USD to battle with the bears. German IP marked the strongest monthly growth since 2020 with a 2.7% mark. An increase in Eurozone’s Employment Change YoY for Q4, to 2.2% versus 2.1% expected and prior also favored the EUR/USD bulls. It should be observed that the Eurozone Q4 GDP confirmed 4.6% YoY growth on Tuesday.

On the other hand, the US trade deficit rallied to a record high and the small business confidence, as signaled by IBD/TIPP Economic Optimism gauge for March, dropped to the lowest in 13 months.

Moving on, a light calendar on Wednesday and mixed catalysts may keep troubling the EUR/USD traders ahead of the US Consumer Price Index (CPI) for February and Thursday’s peace talks between Ukraine and Russia in Turkey.

Technical analysis

The resistance-turned-support line of a two-week-old falling wedge and bullish MACD signals keep EUR/USD buyers hopeful.

That said, a clear upside break of the previous support line from mid-February, around 1.0930 by the press time, becomes necessary to convince the pair buyers.

Alternatively, a downside break of 1.0885 defies the latest falling wedge confirmation, which in turn will direct the EUR/USD prices towards the latest bottom surrounding 1.0800.