EUR/USD retreats to 1.0900 even as hawkish Fed bets ease pre-Eurozone, US inflation hints

• EUR/USD grinds higher after refreshing one-week top, retreats from intraday peak of late.
• Pre-data anxiety seems probing Euro buyers as markets anticipate easing inflation fears.
• Comparative more hawkish ECB speakers, than the Fed ones, join upbeat EU data to keep buyers hopeful.
• German Retail Sales can entertain EUR/USD traders ahead of Eurozone HICP, US Core PCE Price Index.

EUR/USD stays defensive around 1.0910 after refreshing the weekly high to 1.0925 during early Friday. In doing so, the Euro pair portrays the market’s cautious mood ahead of the key inflation clues from Eurozone and the US. Adding strength to the pullback moves could be the recently sluggish Treasury bond yields.

Downbeat prints of German inflation contrast with the policymakers’ hawkish bias to challenge the EUR/USD pair’s latest run-up even if the recently easing expectations of a rate hike by the Fed in May month’s Federal Open Market Committee (FOMC) Monetary policy meeting.

Preliminary readings of Germany’s inflation gauge, namely the Harmonised Index of Consumer Prices (HICP), suggested an easing in price pressure to 7.8% YoY in March versus 9.3% prior and 7.5% market forecasts. On the same line, German inflation per the Consumer Price Index (CPI) also eased to 7.4% YoY during the stated month from 8.7% prior and 7.3% expected. Further, the Eurozone Business Climate gauge for March eased to 0.70 versus 0.71 prior while the Consumer Confidence figure came in at -19.2 during the stated month while matching market forecasts and prior.

Even so, the latest Economic Bulletin from the European Central Bank (ECB) said, “Inflation is projected to remain too high for too long.” On the same line, Frank Elderson, member of the Executive Board of the European Central Bank (ECB) and Vice-Chair of the ECB’s Supervisory Board said in a media interview, “We must reduce the very high rate of inflation.”

For the US, the final readings of the US fourth quarter (Q4) Gross Domestic Product (GDP), also known as the Real GDP, marked an easy Annualized growth number of 2.6% versus 2.7% previous forecasts. It’s worth noting that the Q4 Personal Consumption Expenditure (PCE) Prices matched 3.7% QoQ forecasts and prior while the Core PCE figure grew to 4.4% QoQ versus 4.3% expected and prior. Moving on, the Weekly Initial Jobless Claims rose to 198K for the week ended on March 25 versus 191K prior and 196K market forecasts. 

It should be noted that Federal Reserve Chairman Jerome Powell joined three other Fed Officials to back further rate hikes on Thursday, citing the need to tame the inflation woes. However, mixed US data raise doubts about the Fed policymakers’ hawkish rhetoric and rather concentrated on their rejection of banking crisis woes to weigh on the US Dollar, as well the Fed bets.  That said, the CME’s FedWatch Tool suggests a nearly 50% chance of a 0.25% rate hike in the May Fed meeting, versus 60% the previous day.

On a different page, officials from the Federal Reserve (Fed), the European Central Bank (ECB), the Bank of England (BoE) and the Swiss National Bank (SNB) have recently pushed back the fears of the banking crisis and allowed the markets to remain optimistic. The same weighs on the US Dollar’s demand, especially amid sluggish yields.

While portraying the mood, the S&P 500 Futures refresh a three-week high near 4,095, rising for the third consecutive day, as it traces Wall Street’s upbeat sentiment. That said, the US 10-year Treasury bond yields rose two basis points (bps) to 3.57% whereas the two-year counterpart grinds higher to 4.13% during a five-day uptrend.

Looking forward, the Eurozone Harmonised Index of Consumer Prices (HICP) for March and the United States Core Personal Consumption Expenditure (PCE) Price Index for February will be closely watched for clear directions. Also important to watch will be Germany’s Retail Sales for February, expected -5.2% YoY versus 6.9% prior.

Forecasts suggest the EU HICP ease to 7.1% YoY from 8.5% prior but the Core HICP could print annualized growth of 5.7% versus 5.6% previous readings. Further, On the other hand, the Fed’s preferred inflation gauge, namely the US Core PCE Price Index, is likely to remain unchanged at 4.7% YoY during February. However, the monthly figure is expected to ease to 0.4%, from 0.6% prior.

Technical analysis

Given the overbought RSI (14) and the Euro pair’s repeated failures to cross the 1.0930-35 horizontal resistance area, comprising levels marked since late January, the EUR/USD pair may drop to a two-week-old ascending support line, close to 1.0850 at the latest.