EUR/USD approaches 1.0750 key hurdle ahead of US PCE Inflation

• EUR/USD remains on the front foot around weekly/monthly top, sidelined of late.
• Softer USD, risk-on mood underpin the bullish bias targeting 50-DMA, early April’s low.
• Shrinking Fed vs. ECB divergence appears the key catalyst to recall bulls, highlighting US PCE Price Index for April.

EUR/USD grinds higher around the weekly top, as well as monthly high, recently steady around 1.0735 as bulls await fresh clues during a lackluster Asian session on Friday. The major currency pair cheered broad US dollar weakness, as well as the market’s optimism, to portray the run-up.

That said, the US Dollar Index (DXY) fades the mid-week bounce off the monthly low, dropping back to 101.78 at the latest, as market participants welcomed the lack of uncertainty over the Fed’s next move with zeal.

While portraying the mood, Wall Street benchmarks portrayed the second day of gains whereas the US 10-year Treasury yields remained indecisive around 2.75%. Further, S&P 500 Futures begins Friday without any major surprises around 4,055, down 0.05% intraday at the latest.

Also favoring the greenback bears were fears of an economic slowdown amid the recent raft of downbeat data. The US preliminary Q1 2022 Annualized GDP eased to -1.5%, below -1.4% prior and -1.3% forecasts, whereas a slump in the US Pending Home Sales for April, to -3.9% versus -2.0% forecast, also weighed on the greenback.

On a different page, recently hawkish comments from the European Central Bank (ECB) officials and the Eurozone diplomats, shrugging off recession fears due to the Russia-Ukraine crisis. The bloc’s policymakers also teased rate hikes of late and cut the monetary policy divergence between the US Federal Reserve (Fed) and the ECB, which bolstered the EUR/USD prices.

To sum up, EUR/USD prices are likely to remain firmer as the ECB vs. Fed drama turned in favor of the bloc. However, today’s US inflation data is the Fed’s preferred gauge of price pressure and may change the show of appeared extreme, expected at 4.9% YoY versus 5.2% prior. Also important will be the Fedspeak and the geopolitical headlines concerning China and Russia.

Read: US Core PCE Preview: Why there is room for a dollar-lifting upside surprise

Technical analysis

Bullish MACD and RSI (14) back the clear break of a monthly horizontal hurdle to keep buyers hopeful of crossing the 50-DMA level surrounding 1.0750. However, lows marked during early April, near 1.0760, could probe the bulls before March’s low of 1.0806.

Alternatively, a fortnight-old support line, near 1.0650, could test the pullback moves before the aforementioned horizontal resistance-turned-support around 1.0640.