EUR/USD pullback eyes 1.0000 on hawkish Fed bets, inflation concerns, ECB’s Lagarde eyed

• EUR/USD retreats from one-week high, snaps four-day uptrend.
• Sour sentiment, pre-Fed anxiety joins China/Europe chatters to recall bears.
• Multi-day low of US inflation expectations raised short-squeeze fears to underpin corrective bounce.
• Second-tier US data, speech from ECB President Lagarde eyed for fresh impulse.

EUR/USD takes offers to renew intraday low around 1.0020 as risk appetite weakens during full markets on Tuesday. In addition to the return of the Japanese and British traders after a long weekend, fears surrounding China and Europe join a cautious mood ahead of the key weekly events to weigh on the major currency pair.

Full markets keep the yields on a firmer footing while portraying the fears of recession. As a result, the US 10-year and 2-year Treasury yields remain sidelined at the highest levels since April 2011 and October 2007 in that order. Also, Japan’s 10-year Government Bond yields (JGBs) jump to the highest since 2016. It should be noted that the S&P 500 Futures fade the previous day’s bounce off a two-month low around 3,920 to also signal the fading optimism.

Monday’s ninth consecutive fall in the US NAHB Housing Market Index joined the multi-day low of the US inflation expectations to previously favor the EUR/USD buyers. The US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, dropped for the third consecutive day to a two-month low near 2.34% by the end of Monday’s North American trading session. More importantly, the 5-year breakeven inflation rate per the FRED data dropped to the lowest levels since September 2021, at 2.44% at the latest.

Additionally, hopes that the market players are already certain about the Fed’s 0.75% rate hike and the same could allow the EUR/USD buyers to pare previous losses around the yearly low after the actual announcements seemed to have favored the recovery moves previously.

Elsewhere, hopes of a major stimulus from the European Commission and hawkish speech from the European Central Bank (ECB) officials also seemed to have favored the EUR/USD buyers.

It’s worth noting, however, that the return of the risk-off is likely to join the pre-event anxiety to exert downside pressure on the EUR/USD prices. That said, ECB President Christine Lagarde may allow the pair sellers to take a breather should she miss the mention of economic fears. Even so, the hawkish Fed expectations keep bears hopeful.

Technical analysis

A clear upside break of the 50-SMA immediate hurdle surrounding 1.0035 becomes necessary for the EUR/USD buyers to retake control. Otherwise, the 0.9945 support holds the key to the EUR/USD pair’s further downside.