EUR/USD treads water above 1.0700 with eyes on ECB, Fed talks

• EUR/USD seesaws around seven-month high, steadies off late.
• Cautious mood ahead of this week’s key catalysts probe EUR/USD traders.
• Upbeat EU data jostle with hawkish Fedspeak to confuse pair traders.
• Speeches from Fed Chair Powell, ECB’s Schnabel and US inflation will be crucial for fresh impulse.

EUR/USD dribbles between 1.0720 and 1.0745 so far during early Tuesday as traders await more clues to extend the latest north-run. In doing so, the major currency pair seesaws around the highest levels since June 2022 as bulls run out of steam as the US Dollar rebounds on doubts over the previous risk-on mood, as well as due to a rebound in the US Treasury yields.

US Dollar Index (DXY) picks up bids to 103.25 as it bounces off an upward-sloping support line from May 2021. That said, the US 10-year Treasury yields seesaw around a three-week low marked the previous day, close to 3.53% by the press time, as it snaps a two-day downtrend.

The rebound in the US Treasury yields and the DXY could be linked to the comments from Atlanta Federal Reserve bank President Raphael Bostic as he said on Monday that it is ''fair to say that the Fed is willing to overshoot.'' On the same line, San Francisco Federal Reserve Bank President Mary Daly stated that they are determined, united, resolute to bring inflation down.

Furthermore, the Federal Reserve Bank of New York's monthly Survey of Consumer Expectations showed on Monday that the US consumers' one-year inflation expectations declined to 5% in December from 5.2% prior. However, the three-year ahead expected inflation remained unchanged at 3% and the five-year ahead expected inflation edged higher to 2.4% from 2.3%, which in turn renewed inflation woes and probed EUR/USD bulls.

On the other hand, German Industrial Production rose 0.2% MoM in November versus 0.1% expected and -0.1% previous readings. However, the yearly figures marked -0.4% YoY outcome compared to 0.0% prior and 1.3% market forecasts. Additionally, the Eurozone Sentix Investor Confidence index rose to –17.5 in January from -21.0 in December vs. -11.1 expected. On the contrary, the European Central Bank (ECB) noted in its Economic Bulletin article published on Monday that the wage growth in the next few quarters to be "very strong" but real wages will fall further in the coming months.

Receding optimism surrounding China, mainly due to the Covid fears for the rural parts of the dragon nation, also seemed to have probed the EUR/USD buyers. Bloomberg cites the dearth of facilities and drugs, as well as experts’ fears of a spike in Covid cases in January, to challenge the previously positive sentiment.

As a result, the S&P 500 Futures dropped 0.30% intraday by the press time even as Wall Street closed mixed.

Moving on, a speech by ECB’s Isabel Schnabel will precede Fed Chair Powell’s panel discussion at the Riksbank’s International Symposium on Central Bank Independence to determine immediate EUR/USD moves. Should Fed’s Powell favor aggressive rate hikes, the major currency pair may witness further declines.

Technical analysis

A downward-sloping resistance line from late May 2022, around 1.0730, joins the looming bull cross on the MACD indicators to keep the EUR/USD buyers hopeful.

On the contrary, pullback moves may initially aim for a seven-week-long support line, close to 1.0540 to convince the EUR/USD bears.