EURUSD price stays firmer past 1.0200 as recession fears ebb ahead of ECB

• EURUSD price reverses the previous day’s pullback from fortnight high.
• Market sentiment remains sour but US dollar struggles to justify its safe-haven appeal amid Fed’s blackout period.
• ECB is set for a 0.25% rate hike but widely discussed 50 bps move tease policy hawks, pair bulls.

EURUSD price grinds higher around the intraday top near 1.0225 as traders brace for the key monetary policy announcements from the European Central Bank (ECB). It’s worth noting, however, that the US dollar’s struggle to justify its safe-haven appeal, even at the time when recession and covid fears escalate, appears to challenge the pair buyers as they pare the previous day’s losses around the weekly top.

Widespread fears of economic recession in Germany join Italy’s political crisis and downbeat EU Consumer Confidence to weigh on the regional currency Euro. However, record high inflation and hawkish expectations from the ECB appear to have underpinned the latest rebound in the major currency pair.

Also read: ECB Preview: Three critical factors to watch, and why EUR/USD is set to plunge

EURUSD price fails to justify economic/political crisis at home

Be it Germany’s fears of economic contraction or Italy’s political crisis, the EURUSD price has more fears to consider than to stay hopeful of welcoming the bulls on the ECB. That said, the International Monetary Fund (IMF) cut down Germany’s 2022 GDP forecast to 1.2% and to 0.8% for 2023 versus the previous expectations of 2.0% German GDP for both years. On the other hand, Italian Prime Minister Mario Draghi won a confidence motion, but as three major cotillion parties boycotted the vote and hence Mr. Draghi may again resign and trigger early elections in the nation.

US Dollar struggles during Fed’s blackout

The Fed policymaker’s pre-meeting absence appears to have tested the US dollar bulls even if the risk-aversion triggered the greenback’s rebound on Wednesday. That said, the US Dollar Index (DXY) fades the previous day’s rebound from a two-week low as it retreats to 106.80, down 0.23% intraday, at the latest. The greenback’s recent weakness could be linked to the market’s expectations of a more hawkish outcome from the ECB than the widely anticipated 0.25% rate hike.

Nord Stream 1 to keep EURUSD bears hopeful

Mixed clues surrounding Russia’s Nord Stream 1 pipeline, the key gas route supplying energy to Germany and major European nation, appears to keep EURUSD traders worried. The reason could be linked to the pipeline’s latest halt due to maintenance and the uncertainty over its restart due to the sour relations between Europe and Russia. European Commission President Ursula von der Leyen said on Wednesday that it was a likely scenario that there could be a full cut-off of Russian gas, as reported by Reuters. On the other hand, Russian President Vladimir Putin mentioned that they are yet to see in which condition the equipment for Nord Stream 1 will be after returning from maintenance, per Reuters. 

US/EU data exert downside pressure

Downbeat prints of the US and EU data appear to keep EURUSD bears hopeful ahead of the ECB as the pain seems more on the bloc’s side than the US. That said, Eurozone Consumer Confidence marked the record slump on Wednesday while flashing a -27.00 print for July. On the other hand, US Existing Home Sales dropped for the fifth consecutive month in June to a seasonally adjusted annual rate of 5.12 million versus 5.38M expected and 5.41M prior. This was the fifth straight decline and took sales to the lowest level in two years. It’s worth noting that the record inflation in Eurozone and downbeat employment figure make today’s ECB the key.

ECB is the key

ECB headquater in Germany

The European Central Bank (ECB) is likely to revisit the rate hike path after suffering multiple years of negative rates. The initial market forecasts hint at the 0.25% increase in the benchmark rates, which in turn could trigger a kneejerk EURUSD bounce. However, the market is already pricing in a 0.50% rate lift and hence any moves below the same may not lure the pair buyers. Even so, qualitative actions surrounding Quantitative Easing (QE) could keep the meeting interesting.

EURUSD price technical outlook

EURUSD bulls again approach the 100-SMA level surrounding 1.0215, after facing multiple rejections in the last two days, as firmer RSI backs the early week breakout of the 50-SMA and descending trend line from June 27.

It’s worth noting, however, that multiple tops surrounding 1.0275-80 could act as an additional short-term hurdle for the pair before it can rally towards the 10-week-old resistance zone near 1.0355-65.

Even if the quote rises past 1.0365, a convergence of the 100-SMA and descending resistance line from June 09, close to 1.0385, appear the last defense of EURUSD bears before giving control to the bulls.

Alternatively, pullback remains elusive until the quote remains beyond the 1.0100 support confluence including the 50-SMA and previous resistance line.

Following that, the 61.8% Fibonacci Expansion (FE) of March-May 2022 moves near 0.9950 and the December 2002 low near 0.9860 will be important to watch.

EURUSD: Four-hour chart

Euro must hold 1.0074 on ECB .25 hike