EUR/USD braces for second weekly gain around parity ahead of US/German inflation data

• EUR/USD prints mild gains while paring the biggest intraday loss in three weeks.
• Market sentiment remains dicey as Fed hawks retreat after mixed US data, ECB disappoints.
• Softer yields weigh on DXY but buyers remain cautious ahead of US Core PCE Inflation, German Q3 GDP and HICP data.

EUR/USD pares intraday gains around 0.9980, retreating from daily top, as traders await the key inflation data from Germany and the US on Friday. Even so, the major currency pair remains on the way to posting the second consecutive weekly upside while printing mild gains at the latest.

The European Central Bank’s (ECB) disappointment favored the EUR/USD bears the previous day even as the yields eased afterward. That said, the region’s central bank matched wide market forecasts of the announced 75 basis points (bps) rate hike but President Christine Lagarde pushed back the hawkish expectations.

“President Lagarde said inflation will rise further in coming months and that the ECB is data dependent. She then contradicted that guidance by saying the three factors to take into consideration are: the outlook for inflation and growth, the extent to which rates have already risen, and a consideration of the lagged effects of tightening. That list is not so ‘data dependent’. We think the ECB may dial down to 50bp hikes from December,” said the Australia and New Zealand Banking Group (ANZ).

On the other hand, the US Dollar Index (DXY) retreats to 110.50, following Thursday’s recovery from the five-week-low, as Fed hawks get mixed details of the overall strong US data. The US Gross Domestic Product (GDP) rose 2.6% on an annualized basis, more than expected, in the third quarter (Q3). Even so, a fifth consecutive fall in private consumption challenged the Fed hawks as it showed the policymakers are gradually nearing the target of slowing down private domestic demand, which in turn might favor the easy rate hike talks for December in the next week’s Federal Open Market Committee (FOMC) meeting.

It should be noted that the recently grim headlines from the International Monetary Fund (IMF) and geopolitical concerns surrounding Russia challenge the market’s optimists even as the DXY remains downbeat. While portraying the mood, the S&P 500 Futures drop half a percent near 3,800 by the press time.

Moving on, the first readings of Germany’s Q3 GDP and preliminary figures of Harmonized Index of Consumer Prices (HICP) for October, expected -0.2% QoQ and 10.9% YoY respectively versus 0.1% and 10.9% prior, could entertain EUR/USD traders. Following that, the Fed’s preferred inflation gauge, namely the US Core PCE Price Index for September, expected to rise to 5.2% versus 4.9% prior, will be crucial for the USD/CNH pair traders to watch for clear directions.

Given the easing hawkish Fed bets, firmer data from Germany could please EUR/USD buyers ahead of the next week’s Federal Open Market Committee (FOMC) meeting.

Technical analysis

Although the 100-DMA challenges EUR/USD buyers around 1.0085, the downside remains elusive unless the quote stays beyond the previous resistance line from early February 2022, close to 0.9920 by the press time.