EUR/USD retreats towards 1.0500 amid anxiety over ECB vs. Fed action

• EUR/USD fades bounce off five-year low as the Fed week begins.
• Fed’s 0.50% rate hike is in the offing but USD bulls seek clues on balance-sheet normalization to dominate further.
• ECB’s de Guindos rules out July rate-hike concerns, Holzmann hints at rate hikes in summer or autumn.
• EU oil embargo on Russia, German Retail Sales and US ISM Manufacturing PMI to direct intraday moves.

EUR/USD rebound turns weary as traders brace for the much-awaited Fed verdict during the early hours of Monday’s Asian session. That said, the major currency pair portrayed the first positive daily close in seven the previous day but struggles around 1.0550-40 of late as market participants remain cautious ahead of the key event, as well as weigh the latest development as negative for the quote.

Although the US Dollar Index (DXY) eased from the five-year high on Friday, the EUR/USD prices portrayed a 100-pip worth of corrective pullback. Even so, the quote remains pressured around the lowest levels since 2017 as this week’s Federal Reserve (Fed) meeting and pre-NFP anxiety challenge the recovery moves.

Also weighing on the EUR/USD prices are the latest comments from the European Central Bank (ECB) policymakers, who raised economic concerns but deferred from Fed policymakers when it comes to rate hike signals. Recently, European Central Bank (ECB) Vice President Luis de Guindos said, “ECB rate hike possible but not likely in July,” per Bloomberg. On the same line was ECB Governing Board member Robert Holzmann who signaled rate hike in summer or autumn.

On the contrary, the Fed is all set to announce a 0.50% rate hike during Wednesday’s meeting. However, major attention will be given to the comments relating to the balance-sheet normalization and economic forecasts.

It’s worth noting that the fears of economic recession in the old continent, due to the Ukraine-Russia crisis, also weigh on the EUR/USD prices. Even so, the bloc remains sturdy to exert economic pressure on Moscow for its invasion of Kyiv. Recently, Germany’s energy security report signaled that the nation will end dependence on Russian oil by the end of this summer.

Other than the ECB and geopolitical crisis, China’s covid conditions and firmer US data, as well as reflation fears, also underpin the US dollar’s demand and praise the EUR/USD prices.

As a result, the EUR/USD pair may remain pressured but the cautious mood ahead of this week’s key events may restrict the downside moves. That said, today’s German Retail Sales for March and the US ISM Manufacturing PMI for April can offer intraday directions.

Also read: EUR/USD Weekly Forecast: Stairway to hell, NFP and Fed likely to fuel the current trend

Technical analysis

Friday’s corrective pullback couldn’t cross a downward sloping previous support line from November 2021, around 1.0590 by the press time, which in turn directs EUR/USD traders towards the latest multi-month low of 1.0471.