EUR/USD retreats towards 1.0500 amid quiet markets, EU inflation, Fed’s Powell in focus

• EUR/USD snaps two-day uptrend while stepping back from a weekly top.
• Mixed sentiment, quiet markets allow traders to consolidate recent moves.
• Recession fears, ECB’s lack of aggression exert additional downside pressure.
• Final readings of Eurozone inflation, Fed’s bi-annual Monetary Policy Report and a speech from Powell will be the key catalysts.

EUR/USD bulls take a breather around 1.0545, after a two-day uptrend to refresh the weekly top, amid calmer markets during Friday’s Asian session. In doing so, the major currency pair eases from the weekly top surrounding 1.0600 despite portraying inaction of late.

The quote’s latest retreat could be linked to the mixed concerns in the market, despite downbeat Treasury yields and mildly bid stock future. Also challenging the pair buyers could be the European Central Bank’s (ECB) failure to keep up with the major central banks, as far as the recent hawkish trajectory is concerned.

It should be noted that downbeat US Treasury yields and softer US data joined hawkish comments from the ECB policymakers to propel the EUR/USD prices on Thursday.

The US benchmark 10-year Treasury yields dropped during the last two consecutive days to 3.195% at the latest. S&P 500 Futures, on the other hand, print 0.25% intraday gains after losing around 3.25% on Wall Street.

On the other hand, the US Building Permits and Housing Starts eased in May to 1.695M and 1.549M respectively while the Initial Jobless Claims 4-week average inched up to 218.5K versus 215K expected during the period ended on June 10. Further, Philadelphia Fed Manufacturing Survey printed a negative figure of -3.3 for June, the first such contraction since May 2020.

Furthermore, ECB Governing Council member Ignazio Visco and policymaker Francois Villeroy de Galhau preceded President Christine Lagarde while trying to impress bulls on Thursday. ECB’s Visco said that he expects the ECB to continue to hike the policy rate in a gradual and sustained way after September, as reported by Reuters. On the same line, ECB’s Villeroy de Galhau highlighted inflation fears and indirectly signaled the need for higher rates as he said, "We're seeing inflation in Europe which is not only higher, which is also broader," Villeroy said. "If it was only about energy prices, some economists would say you can look through, as they say, you can wait until these supply shocks stop."

Following that, ECB’s Lagarde mentioned, "Doubting our commitment would be a serious mistake," Lagarde reportedly added. "The goal of anti-fragmentation tool is not to close spreads, but to normalize spreads." Her comments also hint at the ECB’s readiness to act.

Moving on, EU Norm Inflation for May and the final readings of Eurozone HICP for the stated month could entertain EUR/USD traders ahead of the US Industrial Production for May, expected at 0.4% versus 1.1% prior. However major attention will be given to Fed’s bi-annual Monetary Policy Report and Fed Chairman Jerome Powell’s speech.

Technical analysis

A failure to provide daily closing beyond the 10-DMA, around 1.0565 by the press time, teases EUR/USD pullback. Also acting as an upside filter is the horizontal area comprising multiple levels marked since early May, near 1.0640.