EUR/USD flirts with 1.0700 support ahead of ECB’s Lagarde, US ISM PMI

• EUR/USD fades bounce off intraday low, stretches pullback from monthly top.
• Treasury yields underpin US dollar strength ahead of Fedspeak, ISM Manufacturing PMI for May.
• Lagarde’s reaction to record high Eurozone inflation will be important to note.

EUR/USD drops back to intraday lows surrounding 1.0710, extending the previous day’s U-turn from a one-month high, as the US dollar keeps the latest gains ahead of the key data/events. That said, the major currency pair declines towards short-term key support during early Wednesday morning in Asia.

US Dollar Index (DXY) extends Tuesday’s recovery from the monthly low, up 0.22% intraday near 102.00 by the press time, as hawkish Fedspeak and mostly upbeat data recall the greenback buyers.

Among them, comments from US Treasury Secretary Janet Yellen and Atlanta Fed President Raphael Bostic, as well as US President Joe Biden’s readiness for using harsh measures on Russia, gained major attention.

“US Treasury Secretary Janet Yellen said on Tuesday that she was wrong in the past about the path inflation would take, but said taming price hikes is President Joe Biden's top priority and he supports the Federal Reserve's actions to achieve that,” said Reuters. Further, Fed’s Bostic crossed wires during an interview with MarketWatch as he said that his suggestion that the central bank takes a September “pause” in its push to raise interest rates should not be construed in any way as a “Fed put,” or belief that the central bank would come to the rescue of markets.

On the same line, US President Biden said, “If Russia does not pay a heavy price for its actions, it will send a message to other would-be aggressors that they too can seize territory and subjugate other countries,” per The New York Times.

It’s worth noting, that the US Chicago Purchasing Managers’ Index and CB Consumer Confidence both rose past forecasts for May whereas the Dallas Fed Manufacturing Business Index dropped to the lowest levels in two years. On the other hand, the Eurozone Harmonised Index of Consumer Prices (HICP) soared by 8.1% in May vs. the previous reading of 7.4%, refreshing the record high marked in the last month.

Given the recently hawkish comments from the Fed, the US 10-year Treasury yields extend yesterday’s recovery moves to 2.864%, up two basis points (bps). However, the S&P 500 Futures also print mild gains after bouncing from the yearly low during May.

The mixed sentiment and challenges EUR/USD traders ahead of a speech from the European Central Bank (ECB) President Christine Lagarde who will be observed closely after the latest Eurozone inflation data. Should Lagarde repeat her hawkish bias, the pair may reverse the recent losses.

However, firmer prints of the US ISM Manufacturing PMI for May, expected 54.5 versus 55.4 prior, as well as hawkish Fedspeak, can defend the US dollar buyers.

Read: US ISM Manufacturing PMI May Preview: Gloom persists despite an US expanding economy

Technical analysis

EUR/USD’s U-turn from 38.2% Fibonacci retracement (Fibo.) of February-May downside, around 1.0790 at the latest, gains support from RSI (14) retreat to favor sellers. Also keeping the bears hopeful is the clear downside break of the 50-day EMA, near 1.0740 by the press time.

However, an upward sloping support line from mid-May, around 1.0700, challenges the EUR/USD pair’s further declines.