EUR/USD struggles to find acceptance above 1.0500, eyes ECB and Fed for fresh impetus

• EUR/USD regained positive traction on Wednesday and climbed back closer to the weekly high.
• Retreating US bond yields dragged the USD away from a two-decade high and extended support.
• Investors now await the ECB's ad hoc meeting for some impetus ahead of the FOMC decision.

The EUR/USD pair attracted fresh buying in the vicinity of the 1.0400 round figure on Wednesday and moved further away from a near one-month low touched the previous day. The recovery momentum pushed spot prices back closer to the weekly high, though bulls seemed struggling to capitalize on intraday gains beyond the 1.0500 psychological mark.

Following the recent bullish run to a two-decade high, the US dollar witnessed some profit-taking on Wednesday amid a softer tone surrounding the US Treasury bond yields. Apart from this, signs of stability in the financial markets further undermined the greenback's relative safe-haven status and acted as a tailwind for the EUR/USD pair.

On the other hand, the shared currency drew additional support from a hawkish shift by the European Central Bank (ECB), signalling that it would deliver its first rate hike since 2011 in July. The ECB also left the door open for a potentially larger move in September, which supports prospects for some meaningful upside for the EUR/USD pair.

Bulls seemed rather unaffected by the IFO institute's downward revision of the 2022 GDP growth projections for the German economy. The Munich-based research institution lowered its 2022 forecast for German growth to 2.5%, from 3.1% previously predicted in March, and revised its inflation forecast sharply higher to 6.8%, up from an earlier 5.1%.

Investors now seem to wait for headlines from the ECB’s ad hoc Governing Council meeting to discuss the recent sell-off in bond markets before placing fresh bets. Apart from this, traders will take cues from the US monthly Retail Sales data and ECB President Christine Lagarde's speech. The focus, however, remains on the FOMC decision, due later during the US session.

Technical levels to watch