EUR/USD licks ECB, US GDP inflicted wounds below 1.1000 ahead of German, US inflation clues

• EUR/USD stays defensive at three-week low after posting the biggest daily loss since March 15.
• ECB announces 0.25% rate hike, as expected, but absence of clear forward guidance and chance in statement prod Euro bears.
• Strong US Q2 GDP Annualized growth bolsters US Dollar strength ahead of Fed’s favorite inflation gauge.
• Preliminary German Q2 GDP and inflation data for July eyed ahead of US Core PCE Price Index for June.

EUR/USD seesaws around 1.0980-70 during the early hours of Friday’s Asian session while licking its wounds after declining the most in 4.5 months the previous day. In doing so, the Euro pair portrays the market’s cautious mood ahead of the top-tier data from Germany and the US at the lowest level in three weeks.

On Thursday, the European Central Bank (ECB) matches market forecasts by announcing 25 basis points (bps) increase in the benchmark rates. That said, the policy statement showed the board is “open-minded” about further tightening.

However, the ECB statement dumped reference to the need to bring the rates to a level that cuts inflation quickly enough and gained the attention of the Euro bears, especially when backed by ECB President Christine Lagarde’s comments stating, “The wording change in the statement was not random or irrelevant.”

On the same line, ECB’s Lagarde also signaled the nearness to the end of the inflation battle by suggesting smaller grounds to cover while also showing data-dependency of the next rate decision as well.

Elsewhere, the preliminary readings of the US Gross Domestic Product (GDP) Annualized for the second quarter (Q2) improved to 2.4% from 2.0% prior, versus 1.8% market forecast. On the same line, the US Durable Goods Orders also jumps 4.7% for June compared to 1.0% expected and 1.8% expected (revised). Additionally, Initial Jobless Claims declines to 221K for the week ended on July 21 versus 235K prior and analysts’ estimations of 228K. It should be observed that the US Pending Home Sales for June also improved to 0.3% MoM versus -0.5% expected and -2.5% prior (revised).

However, the first estimations of the US Q2 Core Personal Consumption Expenditure eases to 3.8% QoQ from 4.9% prior and 4.0% market forecasts whereas GDP Price Index edges lower to 2.6% from 4.1% previous readings and 3.0% expected.

Against this backdrop, US Dollar Index (DXY) posted the biggest daily jump since March 15 the previous day, not to forget mentioning a stellar rebound from the weekly low, as the US statistics recall the Fed hawks and bolstered the Treasury bond yields. It’s worth noting that the Wall Street benchmarks closed with nearly half a percent of daily losses whereas the benchmark US 10-year Treasury bond yields marked the biggest daily jump in a month to refresh a three-week high near 4.02%, close to 4.0% by the press time.

Looking ahead, the preliminary readings of Germany’s Q2 GDP and Consumer Price Index , as well as Harmonized Index of Consumer Prices (HICP), for July will be crucial to watch for immediate directions amid looming concerns of the bloc’s recession. Following that, the Fed’s favorite inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index for June, expected 4.2% YoY versus 4.6% prior, could direct the EUR/USD moves as traders seek clues to confirm the September rate hike.

Technical analysis

Despite Thursday’s heavy slump, the 50-day Exponential Moving Average (EMA) and a two-month-old rising support line, respectively near 1.0970 and 1.0955, restrict the EUR/USD pair’s further downside. The recovery moves, however, remain elusive unless providing a clear upside break of a five-week-old horizontal resistance surrounding 1.1010-20.