EUR/USD corrects further from multi-week high, slides below mid-1.0900s ahead of PMIs

• EUR/USD drifts lower for the second successive day and is weighed down by a stronger USD.
• The Fed’s hawkish outlook and the risk-off impulse, continue to underpin the safe-haven buck.
• Bets for additional ECB rate hikes could limit losses ahead of the flash Eurozone/US  PMI prints.

The EUR/USD pair extends the overnight retracement slide from a six-week peak - levels just above the 1.1000 psychological mark - and drifts lower for the second successive day on Friday. Spot prices drop to a two-day low during the Asian session and currently trade around the 1.0940-1.0935 region, down nearly 0.20% for the day.

The US Dollar (USD) regains positive traction following a brief consolidation on the last day of the week and recovers further from its lowest level since May 11 touched on Thursday, which, in turn, is seen exerting pressure on the EUR/USD pair. The USD uptick could be attributed to Federal Reserve (Fed) Chair Jerome Powell's hawkish outlook, backing the case for more interest rate hikes, albeit at a "careful pace", to combat stubbornly high inflation.

During the second day of congressional testimony, Powell added that the Fed doesn't see rate cuts happening any time soon and is going to wait until it is confident that inflation is moving down to the 2% target. This continues to underpin the Greenback and, to a larger extent, overshadows Thursday's dismal US macro data, which showed that Initial Jobless Claims held steady at a 20-month high last week and pointed to a softening labor market.

Apart from this, a generally weaker tone around the equity markets is seen as another factor benefitting the safe-haven buck and contributing to the offered tone surrounding the EUR/USD pair. A slew of interest rate hikes and a more hawkish outlook by major central banks fuel concerns about economic headwinds stemming from rapidly rising borrowing costs. This, along with the worsening US-China relations, temper investors' appetite for riskier assets.

Hence, the market focus will now shift to the release of the flash PMI prints from the Eurozone and the US. This will provide fresh cues about the health of the global economy and provide some meaningful impetus to the EUR/USD pair. In the meantime, expectations for additional interest rate hikes by the European Central Bank (ECB) might hold back traders from placing aggressive bearish bets and help limit the downside, for the time being.

Technical levels to watch