EUR/USD rebound looks to regain 1.1000 on softer US inflation, hawkish ECB talks

• EUR/USD bounces off three-week low amid broad US Dollar weakness, grinds higher of late.
• US inflation softens to 4.9% YoY in April, matches market forecasts and prod Fed hawks.
• ECB policymakers defend rate hikes, German inflation confirms initial estimations for April.
• More clues of US inflation, ECB policymakers’ comments and US debt ceiling updates eyed for intraday moves.

EUR/USD holds onto Wednesday’s recovery from the lowest levels in three weeks while picking up bids to 1.0985 during early Thursday morning in Asia. In doing so, the Euro pair cheers broadly softer US Dollar amid easy inflation numbers from the US, as well as the European Central Bank (ECB) officials’ hawkish comments. However, looming fears of the US default and the anxiety ahead of a few more clues of the US inflation, as well as banking woes, challenge the pair buyers amid generally inactive trading hours of the day.

On Wednesday, the US inflation per the Consumer Price Index (CPI) eased to 4.9% YoY for April versus market expectations of reprinting 5.0% inflation mark. The MoM figures, however, matched the upbeat 0.4% forecasts compared to 0.1% previous readings. Further, the CPI ex Food & Energy, known as the core CPI, matched 5.5% and 0.4% market consensus on a yearly and monthly basis respectively versus 5.6% and 0.4% priors in that order.

Considering the data, Analysts at the ANZ favored recently easing hawkish Fed bets while saying, “We think the combination of the April CPI and labor market report argue strongly against an early Fed pivot. Core monthly CPI has now been sticky at 0.4% m/m or a touch higher for the past five months and the 3m annualized pace is running in excess of 5.0%. Jobs growth is strong and the evident momentum contrasts with the much-needed slackening that is needed if the unemployment rate is to start moving towards the FOMC’s year-end forecast of 4.5%.”

On the other hand, European Central Bank (ECB) President Christine Lagarde said on Wednesday, “We still have more ground to cover in the fight against inflation.” However, ECB Governing Council member Yannis Stournaras told a Greek newspaper, “As things stand now, we can say that interest rate hikes will be over in 2023.” On the same line, ECB policymaker and Bundesbank Chief Joachim Nagel also said, “We might be approaching the final stretch of rate hikes.” Furthermore, ECB policymaker Mario Centeno was among the first to speak about rate cuts “at some point during 2024”.

Elsewhere, US policymakers failed to seal the debt-ceiling deal in their first attempt but let the ball rolling by allowing office members to discuss the details and try again on Friday, which in turn prod the market sentiment. “Detailed talks on raising the US government's $31.4 trillion debt ceiling kicked off on Wednesday with Republicans continuing to insist on spending cuts, the day after Democratic President Joe Biden and top congressional Republican Kevin McCarthy's first meeting in three months,” said Reuters.

Amid these plays, Wall Street benchmarks closed mixed while the US Treasury bond yields snapped a four-day uptrend. Further, the US Dollar Index (DXY) also printed the first daily loss in three, pressured of late.

Moving on, EUR/USD traders may seek more clues about the US inflation and hence the monthly Producer Price Index (PPI) for April, expected to ease to 2.4% YoY but the Core PPI may improve to 0.2% on MoM, will be important for intraday directions. Additionally, ECB talks and risk catalysts like US default woes and banking fallout fears can also direct the pair’s moves.

Technical analysis

Despite the latest rebound, a convergence of the 21-DMA and a one-week-old descending resistance line, around the 1.1000 round figure, restricts the short-term upside of the Euro pair.