EUR/USD bulls approach 1.0200 on cautious optimism, focus on Taiwan, EU/US statistics

• EUR/USD consolidates the biggest daily loss in one week around short-term key support line.
• China’s Caixin Services PMI, mixed comments from the Fed policymakers favor corrective pullback.
• Sino-American tussles over Taiwan, fears of Fed’s aggression keep bears hopeful.
• EU Retail Sales, US ISM Services PMI will decorate the calendar.

EUR/USD picks up bids to refresh the intraday high near 1.0195 while reversing the previous day’s pullback from the monthly top. In doing so, the major currency pair respects the latest shift in the market’s sentiment during early Wednesday morning in Europe.

Although the US-China tussles over the Taiwan issue have been challenging the risk appetite, the recently firmer prints of China’s Caixin Services PMI for July appeared to have recalled the EUR/USD buyers ahead of multiple data from Europe and the US. That said, the private services gauge from the dragon nation rose to 55.5 versus 48 expected and 54.5 prior. While portraying the mood, S&P 500 Futures rise 0.15% intraday while the US 10-year Treasury yields drop three basis points (bps) to 2.71% at the latest.

Additionally, keeping the EUR/USD buyers hopeful are the mixed signals from the US Federal Reserve (Fed) policymakers. , St. Louis Federal Reserve President James Bullard rejected US recession fears while favoring the 50 basis points (bps) rate hike. Also, San Francisco Fed President Mary Daly said that she is looking for incoming data to decide if they can downshift the rate hikes or continues at the current pace, as reported by Reuters. However, Chicago Fed President Charles Evans showed support for a 50 basis points (bps) rate hike for the September policy meeting if inflation does not improve, as reported by Reuters. Furthermore, Cleveland Fed President Loretta Mester, on the other hand, said she does not think the country is suffering a recession, adding that the labor market is in great shape. On inflation, however, she noted that it has not decreased "at all."

Previously, China’s warnings to the US to not play with the Taiwan card and promises to punish Taipei independence supporters, as well as blocking natural sand exports to the Asian economy, seemed to have spoiled the mood and drowned the US dollar.

It should be noted that the European Central Bank’s (ECB) latest communication suggesting economic improvement in the bloc also might have favored the EUR/USD rebound. “The fiscal support provided to the euro area economies amidst the Russia-Ukraine war is boosting the bloc’s GDP while temporarily lowering inflation,” said the ECB in its pre-release of monthly bulletin per Bloomberg.

Looking forward, German trade numbers for June will join the final readings of July PMIs for the Eurozone and the bloc’s Retail Sales for June to entertain EUR/USD bulls ahead of the US Factory Orders for June and ISM Services PMI for July. Given the recent market optimism, the pair may witness further advances should the region’s data arrive as positive.

Technical analysis

EUR/USD clings to an upward sloping support line from July 14, around 1.0180 at the latest. However, the corrective pullback needs validation from the 21-day EMA level surrounding 1.0225 to mark another attempt to cross the fortnight-old horizontal resistance area near 1.0275-80.