EUR/USD snaps three-day losing streak above 1.0600 as US Dollar retreats amid cautious optimism

• EUR/USD rebounds from seven-week low, grinds near intraday high.
• Retreat in US inflation expectations, yields jostle with hawkish FOMC Minutes, comments from Fed policymakers to tease buyers.
• Mixed German data, ECB speak fail to gain major attention.
• Receding fears of recession, nuclear war underpin cautious optimism and trigger corrective bounce of the Euro pair.

EUR/USD prints mild gains around 1.0620 as it consolidates recent losses near the lowest levels in seven weeks during early Thursday. In doing so, the Euro pair cheers mildly positive sentiment in the market, as well as a lack of major data/events.

That said, the major currency pair prints the first daily gain in four while bouncing off the lowest level since early January, marked the previous day, amid hopes from the latest economic data. Recently firmer global activity numbers and comments from the key central bank officials, mainly from the West, have raised hopes that the recession is less likely to happen. Even if it does in a certain part of the world, the effects will be mild and short-lived.

Additionally favoring cautious optimism is the recent retreat in the US inflation expectations. That said, the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) signal a pullback in the US inflation expectations by retreating from the multi-day top.

Elsewhere, Federal Open Market Committee’s (FOMC) Monetary Policy Meeting Minutes stated that all participants agreed more rate hikes are needed to achieve the inflation target. The same initially triggered the market’s risk-off mood and favored the EUR/USD bears before the details suggested that the policymakers also discussed going easy on the rate hike trajectory. The same highlights softer inflation expectations as the key concern for the recent improvement in mood.

The dual meaning of US President Joe Biden’s comments could also be held responsible for the latest mildly upbeat sentiment. As per the latest commentary from US President Joe Biden, he thinks that his Russian counterpart isn’t up to using nuclear arms by backing off an international treaty. However, the fears surrounding the Ukraine-Russia war are far from over, with the latest edition of the West and China escalating the matter to the worse. That said, the Wall Street Journal (WSJ) recently said that the US is considering the release of intelligence on China’s potential arms transfer to Russia. Previously, the China-Russia ties seemed to have escalated the geopolitical woes as the US strongly criticized such moves and favored the rush towards risk safety.

Talking about the mixed data from Europe, Germany’s IFO Business Climate improved to 91.1 for February versus 91.4 expected and 90.1 prior while the Current Assessment eased to 93.9 from 94.1 previous readings and analysts’ estimations of 95.00. Further, the IFO Expectations gauge rose to 88.5 compared to 88.3 market consensus and 86.4 prior. Following the release of the German IFO Business Survey, the institute’s Economist Klaus Wohlrabe said that the “German economy will not get around recession but it will be mild.” It should be noted that Germany’s inflation gauge, namely Harmonized Index of Consumer Prices (HICP), confirmed 9.2% YoY initial forecasts.

Against this backdrop, S&P 500 Futures bounce off the monthly low to print mild gains around 4,020 while the yields are mostly unchanged amid Japan’s holiday, following a retreat from the three-month high the previous day.

Moving on, final readings of the bloc’s inflation gauge and risk catalysts will be important for the EUR/USD traders to watch ahead of the second readings of the US Personal Consumption Expenditures (PCE) details for the fourth quarter (Q4), as well as the preliminary readings of the US Q4 Gross Domestic Product (GDP).

Technical analysis

Unless bouncing back beyond the three-month-old support-turned-resistance, around 1.0740 by the press time, EUR/USD remains on the bear’s radar.