EUR/USD fades bounce off weekly low near 1.0700 on steady yields, ECB, US inflation eyed

• EUR/USD struggles to defend the recovery from weekly low.
• US Treasury yields snapped six-day uptrend before the latest inaction, stock futures retreat on mixed clues.
• Recession fears joined market’s consolidation before the key data/events triggered previous rebound.
• Final readings of Eurozone Q1 2022 GDP may entertain traders ahead of ECB, US inflation.

EUR/USD retreats to 1.0700, following the rebound from a weekly low, as the pair traders search for fresh clues amid the market’s indecision. That said, the major currency pair remains sluggish during Wednesday’s Asian session after snapping a two-day downtrend.

The pair’s latest inaction could be linked to the steady US Treasury yields and the downbeat US stock futures, as well as an absence of major data/events during the quiet session. That said, the US 10-year Treasury bond yields drop back below 3.0%, steady at around 2.94 % by the press time, after posting the first daily loss in seven. Further, the S&P 500 Futures drop 0.15% intraday even if the Wall Street benchmarks closed in the positive territory for the last two days.

Tuesday’s downside in the US Treasury bond yields could be linked to the recession fears emanating from the faster monetary policy normalization by the major central banks. The fears grew on a comment from World Bank (WB) President David Malpass who warned that faster-than-expected tightening could push some countries into a debt crisis similar to the one seen in the 1980s.

Also exerting downside pressure on the bond coupons were comments from US Treasury Secretary Janet Yellen and hopes of faster economic recovery in China, both of which favor risk appetite. On Tuesday, US Treasury Secretary Yellen testified on the Fiscal Year 2023 Budget before the Senate Finance Committee while saying that the US economy faces challenges from "unacceptable levels of inflation", as well as headwinds from supply chain snags. The policymaker added, “An appropriate budget is needed to complement Fed’s actions to tame inflation without harming the labor market.”

On the other hand, a record monthly drop in the US trade deficit, down 19.1% to USD87.1bn for April, as well as Germany’s downbeat Factory Orders for April, challenges EUR/USD buyers. Furthermore, news that Ukraine failed to secure an agreement with Russia or Turkey also weighed on the market sentiment and paused the US dollar weakness. “Kyiv says it has not yet reached any agreement with Russia or Turkey to allow the safe passage of its grain ships in the Black Sea, injecting skepticism into a push by the U.N. to create a vital food corridor,” said Politico.

Above all, the market’s anxiety ahead of Thursday’s European Central Bank (ECB) meeting and the US Consumer Price Index (CPI) for May seems to challenge the EUR/USD traders. That said, today’s final readings of the Eurozone Q1 2022 GDP, expected to confirm the earlier forecasts of 0.3% QoQ growth, could offer intermediate clues.

Technical analysis

Despite the latest run-up from the monthly horizontal support around 1.0640, EUR/USD prices remain below 50-day EMA resistance, near 1.0735 by the press time, which in turn keeps sellers hopeful amid the receding bullish bias of the MACD.