EUR/USD marches towards 1.0500 as ECB announces unscheduled meeting, Fed eyed

• EUR/USD takes the bids to refresh intraday high, extend previous day’s rebound from monthly low.
• ECB unveils a surprise meeting to discuss current market conditions.
• Yields stay pressured, stock futures fade recent gains ahead of the key central bank meetings.
• ECB may try to compensate for previous failures to please hawks, Fed’s 75 bp rate hike is the key.

EUR/USD holds onto the previous day’s recovery around 1.0480 as markets brace for the European Central Bank’s (ECB) surprise monetary policy meeting in early Wednesday. The major currency pair’s latest gains could also be linked to the pullback in the US Treasury yields, as well as the market’s cautious optimism.

As per the latest update from ECB, the regional central bank has called an unscheduled meeting to discuss current market conditions. Amid a dearth of details, the Euro traders have started betting on the hawkish outcome considering the ECB’s previous failures to please optimists. The bloc’s central bank previously failed to impress hawks by announcing only a 25 bps rate hike in July, versus 50 bps expected. The same raises expectations of a bold move by the ECB, which in turn could propel the EUR/USD prices.

Elsewhere, US 10-year Treasury bond yields ease from the highest levels since 2002, down three bps near 3.45% at the latest, amid the market’s anxiety ahead of the key Federal Open Market Committee (FOMC). The softer yields probe the US dollar bulls and favor the US stock futures, despite the latest retreat in equities.

This contrasts with the market’s gung-ho about the 75 basis points (bps) of the Fed’s rate lift during today’s meeting, as well as the political pressure on the US central bank witnessed during late Tuesday.

Moving on, EUR/USD traders will keep their eyes on the ECB and the Fed moves for clear directions as both the central banks have recently conveyed hawkish bias but Powell has an upper hand over Lagarde. Should Fed Chair Jerome Powell manage to please hawks, with or without the widely anticipated 75 bp rate hike, the EUR/USD could return to the monthly lows. Before that, ECB President Christine Lagarde will have an opportunity to position the bulls if she manages to surprise markets.

Other than the central bank moves, Eurozone Industrial Production for April and the US Retail Sales for May are also important to forecasts the short-term EUR/USD moves.

Technical analysis

Monday’s inverted hammer joins nearly oversold RSI conditions to suggest further recovery of the EUR/USD prices until the quote stays beyond May’s low of 1.0349. The recovery moves, however, need validation from 1.0630 to convince bulls.