EURUSD price fades ECB-led strength around 1.0200 ahead of Eurozone/US PMI

• EURUSD price holds lower ground near intraday bottom, stays on the way to first weekly gain in four.
• ECB drowned yields, US dollar with higher-than-forecast rate hike, TPI.
• Fears of economic slowdown, pre-Fed anxiety keep sellers hopeful with eyes on flash PMIs for July.

EURUSD price reverses the European Central Bank (ECB) inspired gains as it remains pressured around the intraday low of 1.0190 heading into Friday’s European session. In doing so, the major currency pair stays inside the immediate trading range while preparing to snap the three-week downtrend.

Although the ECB’s heavy rate hike and the Transmission Protection Instrument (TPI) weighed on the Treasury yields and the US dollar, the market’s reassessment of the risk catalysts calls back the EURUSD bears as they await key activity data from Eurozone and the US for July.

Also read: EUR/USD Forecast: Unconvinced buyers about to give up

EURUSD price ease on DXY rebound

US Dollar Index (DXY) picks up bids to refresh its intraday high around 106.95, up 0.35% on a day, as sour sentiment joins sluggish yields to help the greenback pare latest losses. Even so, the DXY braces for the first weekly loss in four while extending the July 14 reversal from a nearly two-decade high. The greenback’s recent weakness could be linked to the US Treasury yields as the benchmark 10-year bond coupons marked the biggest daily slump since mid-June the previous day, as well as eyes the second consecutive weekly loss.

Problems at home, doubts on TPI defy ECB’s hawkish move

European Union flags waver around ECB building

Economical/political problems in Germany and Italy raise questions about the ECB’s big rate hike. Among them, chatters surrounding the energy shortage and the odds of recession for the bloc’s powerhouse Germany gains major attention. On the same line is the political crisis in Italy after ex-ECB President Mario Draghi resigned from the post of Italian Prime Minister (PM) triggering the need for national elections in September. It’s worth noting that the nature of TPI also becomes a source of uncertainty as President Christine Lagarde made it compulsory for the TPI to follow the European Union (EU) Fiscal Framework.

Fed hawks flex muscles

Having witnessed an impressive reaction to the ECB, Fed hawks brace for the next week’s Federal Open Market Committee (FOMC) and underpin the US dollar’s safe-haven demand. Given the recently firmer US data and hawkish moves from the bloc’s central bank, the Fed policymakers are likely to match market expectations of announcing a 0.75% rate increase. The same could propel the US dollar and hence EURUSD price seems to prepare for the hawkish Fed.

PMIs can offer immediate directions

Given the talks of recession in Germany, today’s S&P Global/BME PMIs for July will be crucial for the EURUSD price. Also important will be the S&P Global PMI releases for the Eurozone and the US for the stated month. Forecasts suggest the overall weakness in activities during July. Given the pending action from the Fed, emphasis will be more on the US data and hence any stronger prints of the US data could extend the latest EURUSD weakness.

EURUSD price technical outlook

EURUSD remains pressured inside a three-day-old trading range, after reversing back from the 21-DMA the previous day.

RSI retreat battles bullish MACD signals to challenge EURUSD buyers and hence short-term sideways performance can’t be ruled out.

That said, a clear upside break of the 21-DMA hurdle surrounding 1.0260 could quickly propel the quote towards a horizontal resistance from May 13, close to 1.0385-90.

It’s worth noting, however, that a downside break of 1.0160 could quickly drag the EURUSD price towards 1.0100 and then to the parity level.

In a case where the quote stays weak below 1.0100, the 61.8% Fibonacci Expansion (FE) of March-May moves, near 0.9960, precedes the December 2002 low near 0.9860 to challenge the further weakness.

Overall, EURUSD remains sidelined but the bears have higher scope for an easy return than the bulls.

EURUSD price: Daily chart

Key trading levels