EUR/USD retreats from 1.0700 with eyes on Fed’s Powell, ECB’s Lagarde and PMIs

• EUR/USD pares the biggest daily gains in 11 weeks around a fortnight top.
• Risk-aversion, pre-data/event anxiety weigh on the pair prices.
• ECB vs. Fed appears the key catalyst, preliminary EU/US PMIs for May also seem important for immediate directions.
• EU oil embargo, China’s covid conditions are extra signals for better forecasting.

EUR/USD takes offers to renew intraday low around 1.0665 as it consolidates the previous day’s run-up, the heaviest since late March, near a two-week top during Tuesday’s mid-Asian session. In doing so, the major currency pair respects the market’s risk-off mood, as well as anxiety, ahead of top-tier data/events. Also weighing on the quote are the recently hawkish comments from the Fed policymakers, as well as the US-China jitters.

Contrary to the neutral comments from the Fed policymakers, San Francisco Federal Reserve Bank President Mary Daly and Kansas City Fed President Esther George sound hawkish in their latest comments. “I think that we can weather this storm, get the interest rate up...price stability restored and still leave Americans with jobs a plentiful and with growth expanding as we expect it to," said Fed’s Daly during an interview with Fox News on Monday. On the same line, Fed’s George expects the US central bank to lift its target interest rate to about 2% by August.

Elsewhere, US Trade Representative (USTR) Katherine Tai poured cold water on the face of expectations that the Sino-American jitters will be eased soon, at least for the trade concerns. The US diplomat said, “We're still working on next actions with China,” while turning down the optimism triggered by US President Joe Biden’s comments suggesting a reversal of the Trump-era tariffs on China.

Furthermore, major banks’ downgrade of the US and Chinese economic forecasts also keep the risk-aversion on the table and weigh on the EUR/USD prices.

It should be noted that the cautious mood ahead of the Quad Summit in Tokyo and the preliminary readings of the US and Eurozone S&P Global Manufacturing and Services PMIs for May drown the risk appetite and favor the pair sellers. On the same line are the scheduled speeches from Fed Chairman Jerome Powell and ECB President Christine Lagarde.

To portray the mood, S&P 500 Futures drop 0.70% to 3,940 whereas the US 10-year Treasury yields fade from the previous day’s rebound from the monthly low of around 2.85%.

Looking forward, Eurozone PMIs may portray the economic conditions in the bloc and can recall the bulls should the outcome challenges the current pessimism, mainly due to the Russia-Ukraine war. Following that, the art of central bankers in defending the respective economies, while also taming the inflation fears, will be crucial for the EUR/USD traders. Given the recently hawkish ECB speak, contrary to Powell’s repetitive remarks, the pair sellers have a tough road to tackle.

Also read: US S&P Global May PMI Preview: Recession worries are high, but what of probabilities?

Technical analysis

EUR/USD prices keep the previous day’s upside break of a descending line from late March, around 1.0560, despite the latest pullback. Also likely to challenge the pair’s further downside is the early-month swing high near 1.0640.

Meanwhile, the previous support line from early March, around 1.0840 by the press time, restricts the short-term upside of the pair.