EUR/USD stabilizes near multi-month high below 1.0900, more clues for US inflation eyed

• EUR/USD pauses five-day uptrend at the highest level since late April 2022.
• Rebound in US Treasury yields, Fed policymakers’ hesitance to back policy pivot probe pair buyers.
• Downbeat US CPI bolstered expectations of Fed’s easy rate hikes and pleased EUR/USD bulls previously.
• US Michigan CSI, 5-year Inflation expectations eyed for clear directions.

EUR/USD retreats from a nine-month high as bulls take a breather after posting the five-day winning streak amid a light calendar on Friday. Even so, the major currency pair refrains from welcoming bears amid dovish hopes from the US Federal Reserve (Fed), backed by the previous day’s US inflation data. That said, the major currency pair seesaws around 1.0850-55 by the press time.

Although multiple US Fed policymakers backed a 0.25% rate hike after Thursday’s downbeat US Consumer Price Index (CPI) data for December, none of them signaled the policy pivot, which in turn raised doubts about the US Dollar’s slump after the CPI matched wide forecasts. As a result, the EUR/USD bulls await more clues to back the expectations of the Fed’s policy pivot in 2023. The same highlights today’s China trade numbers for December and the first prints of the US Michigan Consumer Sentiment Index (CSI) for January, as well as the 5-year US Consumer Inflation Expectations.

In addition to the pre-data caution, headlines suggesting fresh US-China tussles also probe the EUR/USD prices. That said, Reuters cites anonymous sources to state that the White House will discuss a recent crackdown on exports of chip-making tools to China with Japanese and Dutch officials during upcoming visits. The news also mentions that the White House Officials will not result in "immediate" pledges from the two countries to impose similar curbs.

Amid these plays, the S&P 500 Futures remains indecisive even if Wall Street closed with gains while the US 10-year Treasury yields lick their wounds near 3.46% by the press time, following a slump to the monthly low of 3.44% the previous day.

That said, the US CPI matched 6.5% YoY forecasts for December, versus 7.1% prior. More importantly, CPI ex Food & Energy also proved the market consensus of 5.7% YoY figure right, compared to 6.0% previous readings. It’s worth noting that the CPI MoM marked the first negative figure since June 2020 while marking a -0.1% figure for the stated month, versus 0.0% forecast and 0.1% prior.

Following the data, Federal Reserve Bank of Philadelphia President Patrick Harker was the first to flag easy rate hikes after the US CPI and weighed on the US Dollar. On the same line, Richmond Federal Reserve President Thomas Barkin mentioned that it "makes sense" to steer more deliberately as the Fed works to bring inflation down. However, St. Louis Federal Reserve leader James Bullard also said that the most likely scenario is inflation remaining above 2%, so the policy rate will need to be higher for longer.

Recently, Atlanta Federal Reserve bank president Raphael Bostic mentioned that he would be comfortable moving at 25 basis points if conversations with business leaders are consistent with slowing inflation. Fed’s Bostic previously stated that it is ''fair to say that the Fed is willing to overshoot.''

Moving on, anticipated strength in China trade numbers for December could help EUR/USD buyers but likely improvement in the US consumer confidence figures might probe the pair’s upside. It’s worth noting that the US 5-year Consumer Inflation Expectations, Eurozone Industrial Production for November and final prints of the bloc’s inflation data will also be crucial to watch for clear directions.

Technical analysis

Unless declining back below May 2022 top near 1.0785, the EUR/USD bulls are on the way to poking the late April 2022 peak surrounding 1.0935.