EUR/USD retreats towards 1.0500 ahead of German inflation, Fed vs. ECB battle in spotlight

• EUR/USD fades bounce off weekly low as amid market’s anxiety ahead of the key data/events.
• ECB’s Lagarde failed to recall pair buyers amid inflation fears, yields remain pressured amid recession risks.
• Fed’s Powell need to defend hawkish policy moves to keep USD buyers hopeful.

EUR/USD struggles to defend the early Asian session’s corrective pullback during Wednesday morning in Europe. That said, the major currency pair eases from the intraday high to 1.0525 by the press time.

The quote failed to praise the cautious optimism of European Central Bank (ECB) President Christine Lagarde the previous day as fears of recession and higher inflation joined economic challenges for the bloc to please the pair sellers. Also underpinning the bearish bias is the cautious mood ahead of the key German inflation data and important monetary policy discussions among the central bankers from the US, the UK and European Union (EU) at the ECB Forum.

Although ECB’s Lagarde confirmed a 0.25% rate hike for June she also mentioned that there is an optionality to raise by more in September. “We are still expecting positive growth rates,” added the policymaker on Wednesday.

On the other hand, a jump in the one-year US consumer inflation expectations joined hawkish Fed bets to renew the US dollar’s safe-haven demand. The US Conference Board (CB) Consumer Confidence Index dropped for the second consecutive month in June, to 98.7 versus 100.0 expected and 103.2 in May. In doing so, the widely followed consumer sentiment gauge dropped to the lowest level since February 2021. Further details revealed that the one-year consumer inflation rate expectations climbed to 8% from May's revised print of 7.5. It should be noted that the US trade deficit dropped to the lowest in a year, to $104.3 billion, per the latest release for May.

It’s worth noting that Wall Street closed in the red and yield reversed from the weekly top amid growth fears on Tuesday while the US stock futures remain directionless and the bond coupons stay pressured at the latest.

Moving on, the preliminary readings of Germany’s Harmonized Index of Consumer Prices (HICP) for June, expected to rise to 8.8% versus 8.7% prior, may offer intermediate directions ahead of the key ECB forum updates. It’s worth noting that the US Core Personal Consumption Expenditure (PCE) for Q1 2022, expected to remain unchanged at 5.1%, will join the final readings of the US Q1 GDP, likely to confirm a 1.5% Annualized contraction, to highlight additional catalysts for clear directions.

That said, ECB’s Lagarde has often failed to impress EUR/USD buyers but the recent track record of Fed Chair Jerome Powell isn’t good as well, which in turn keeps the pair traders on their toes ahead of the event. Should Powell manages to defend hawkish policy measures, the US dollar can hold the latest gains.

Technical analysis

A clear downside break of the fortnight-old ascending triangle directs EUR/USD bears towards the previous weekly low surrounding 1.0470. On the contrary, a convergence of the 21-day EMA and support line of the stated triangle, near 1.0560, challenges any recovery.