EUR/USD surrenders intraday gains, bears flirt with 1.0400 mark ahead of FOMC

• EUR/USD witnessed selling after the ECB failed to offer much in dealing with fragmentation risks.
• Hawkish Fed expectations helped revive the USD demand and contributed to the intraday decline.
• The USD bulls seemed unaffected by weaker US Retail Sales as the focus remains on the FOMC.

The EUR/USD pair struggled to find acceptance above the 1.0500 psychological mark and surrendered its modest intraday recovery gains during the early North American session. The pair refreshed its daily low in the last hour and was last seen trading around the 1.0400 mark, just a few pips above a nearly one-month low touched the previous day.

The shared currency lost steam after the European Central Bank failed to deliver any new measures to support highly indebted nations in the bloc or ease nervousness over fragmentation risks. The ECB issued a rather underwhelming statement that it would apply flexibility to reinvestments of the Pandemic Emergency Purchase Programme (PEPP).

On the other hand, the US dollar reversed its intraday corrective decline and inched back closer to a two-decade higher amid expectation for a more aggressive policy tightening by the Fed. This was seen as another factor that contributed to the EUR/USD pair's intraday slide of over 100 pips, shifting the bias back in favour of bearish traders.

The USD bulls seemed rather unaffected by the disappointing US macro data, showing that Retail Sales fell 0.3% MoM in May. This was well below consensus estimates pointing to a deceleration in growth to 0.2% from the 0.7% increase in April. Excluding autos, core retail sales also missed expectations and rose 0.5% during the reported month.

It, however, remains to be seen if bears are able to seize back control or prefer to move on the sidelines ahead of the key central bank event risk. The Fed is scheduled to announce the outcome of a two-day policy meeting later during the US session. Market participants expect the US central bank to deliver a jumbo 75 bps rate hike.

Furthermore, Fed fund futures indicate rising odds of another jumbo rate hike in July. Hence, market participants would look for fresh clues to reaffirm expectations for a more aggressive policy tightening by the Fed. This would be enough to provide a fresh lift to the buck and set the stage for a further depreciating move for the EUR/USD pair.

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