EUR/USD finds bids around 1.0670, downside remains favored ahead of US inflation and ECB

• EUR/USD has displayed a weak pullback towards 1.0684 as the DXY has turned sideways.
• Investors should brace for a hawkish stance from the ECB in its monetary policy announcement.
• A higher-than-expected US inflation figure will bolster caution in the FX domain.

Modest recovery has pushed the EUR/USD pair a little higher, however, the downside in the asset looks likely as volatility is expected to sustain ahead of the release of the US inflation and the interest rate decision by the European Central Bank (ECB).

EUR/USD has witnessed a modest buying interest after hitting a low of 1.0671 in the Asian session. Earlier, the shared currency bulls faced selling pressure after violating Monday’s low at 1.0685. The FX domain is turning cautious as the US Consumer Price Index (CPI) is seen at 8.2%, a little lower than the expectations of 8.3% but higher than the desired levels.

Mounting inflationary pressures are strengthening the odds of an extremely hawkish monetary policy by the Federal Reserve (Fed) next week. Advancing bets on the hawkish Fed have infused fresh blood in the US dollar index (DXY). The DXY is marching higher to recapture its previous week’s high at 102.73.

On the eurozone front, investors are awaiting the monetary policy announcement by the European Central Bank (ECB) on Thursday. The ECB is expected to dictate a hawkish monetary policy for the first time since the Covid-19 pandemic. Red-hot price pressures in the eurozone are advocating for policy tightening. Like the other Western leaders, the ECB has not lifted its interest rates yet.

Apart from the ECB policy, investors will also focus on the Gross Domestic Product (GDP) numbers, which are due on Wednesday. The quarterly and annualized figures are expected to remain unchanged at 0.3% and 5.1% respectively.