EUR/USD snaps five-day downtrend near 0.9650 with eyes on ECB’s Lagarde, US data

• EUR/USD prints the first daily gains in six around 20-year low.
• Markets consolidate recent moves amid light calendar, mixed headlines.
• Hawkish central bankers, energy crisis keeps bears hopeful despite immediate rebound.
• US CB Consumer Confidence, Durable Goods Orders, ECB’s De Guindos should also be eyed for fresh impulse.

EUR/USD picks up bids to add strength to the early Asian session rebound near 0.9650. Even so, the major currency pair remains sidelined as traders await the key catalysts while paring the latest losses at the two-decade low on Tuesday.

The major currency pair’s latest gains could be linked to the softer US data and downbeat inflation expectations, as well as the light calendar during the early day. Also keeping the pair buyers hopeful are the latest hawkish comments from the European Central Bank (ECB) officials and hopes of easing the energy crisis as the bloc plan to delay enforcing a price cap on Russian oil imports, per Bloomberg.

ECB President Christine Lagarde said on Monday, per Reuters, that the depreciation of the euro has also added to the build-up of inflationary pressures. “We expect to raise interest rates further over the next several meetings,” added ECB’s Lagarde. The policymaker also mentioned that they will decide whether further policy action is needed once they reach the neutral rate

Before that, ECB Governing Council member Yannis Stournaras said, “In my opinion, the ECB must maintain the basic principles of gradualism and flexibility as the problem it faces is different than that faced by the Fed in the US.” On the same line, ECB Vice President Luis de Guindos said that future rate hikes will depend on incoming macroeconomic data.

It should be noted, however, that Germany’s Economist from the IFO conveyed economic fears after witnessing downbeat prints for September and noted that retail business expectations are at historic lows. “A big minus on all fronts, almost all sectors of the economy are in the minus, the German economy is facing a recession,” stated the IFO Economist.

On the other hand, Chicago Fed National Activity Index weakened to 0.0 in August versus 0.09 market expectations and an upwardly revised prior reading of 0.29. Even so, Boston Fed President Susan Collins said, per Reuters, “Getting inflation down will require slower employment growth, somewhat higher unemployment rate”. Following that, Cleveland Fed President Loretta Mester said on Monday that if there is an error to be made, better that the Fed do too much than to do too little.

That said, the US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, signaled that the gauges refreshed the multi-day low on Monday. While noting the details, the longer-term inflation expectations dropped to the lowest level since July 13, 2022, whereas the 5-year benchmark slumped to the lowest levels since June 2021 with the latest figures being 2.32% and 2.33% respectively.

Against this backdrop, the yields pause the rally and the S&P 500 Futures also print mild gains around the monthly low.

Moving on, a speech from ECB President Lagarde and Vice President Luis De Guindos will join the US CB Consumer Confidence for September and Durable Goods Orders for August to direct short-term EUR/USD moves. However, the economic fears surrounding the old continent and the Fed versus the ECB divergence may keep the bears hopeful.

Also read: US Consumer Confidence Preview: Near-term relief or more risk aversion?

Technical analysis

EUR/USD stays bearish inside a six-month-old downward sloping trend channel, currently between 0.94875 and 1.0000.