EUR/USD recovers to 0.9900 amid mixed feelings over Fed ahead of US ISM PMI

• EUR/USD struggles to defend the bounce off one-week low amid sluggish trading.
• Risk profile remains blurred as yields stay inactive, stock futures pare daily gains ahead of the key data/events.
• Mixed expectations from Fed policymakers previously triggered cautious optimism.
• US ISM, S&P Global PMIs eyed ahead of Wednesday’s FOMC, Friday’s US NFP.

EUR/USD prints mild gains around 0.9900, defending the bounce off 0.9830 support confluence, amid cautious optimism in the market during early Tuesday.

The major currency pair’s latest rebound could also be linked to the recently softer US data that pushed US dollar traders to weigh on Fed’s announcements, given the already priced-in 75 bps rate hike. Also keeping the quote’s upside intact could halt in the US Treasury yields’ run-up and mixed comments from US President Joe Biden and Russian leader Vladimir Putin.

On Monday, the US Chicago Purchasing Managers’ Index and Dallas Fed Manufacturing Business Index for October came in at 45.2 and -19.4 versus 47.0 and -15.0 expected respectively.

“US President Joe Biden on Monday called on oil and gas companies to use their record profits to lower costs for Americans and increase production, or pay a higher tax rate, as he battles high pump prices with elections coming in a week,” said Reuters. On the other hand, Russia’s Putin said he can set up a gas hub in Turkey ‘quite quickly’ and was sure gas contracts will be signed. The Russian leader also added that there will be many in Europe who want to do so.

While portraying the mood, the US 10-year Treasury yields remain sluggish near 4.05% but the equity futures print mild gains amid hopes of easing energy prices, as well as inflation.

“The safe-haven greenback got some support from overnight losses on Wall Street, but a rise in U.S. stock futures and firmness in Asian stocks, led by China, scuppered that demand on Tuesday. Lower long-term U.S. Treasury yields also removed a crutch for dollar strength,” stated Reuters. The news also adds that the Fed is widely expected to raise its benchmark overnight interest rate by 75 bps on Wednesday, its fourth such increase in a row. But for the December meeting, Fed funds futures are split on the odds of a 75- or 50-bps increase.

Looking forward, a light calendar in Europe may allow EUR/USD to remain firmer before the US ISM Manufacturing PMI for October, expected to ease to 50.0 versus 50.9 prior. Also important will be the US S&P Global Manufacturing PMI for the stated month, expected to confirm the initial forecast of 49.9 figures, as well as the JOLTS Jobs Openings for September, forecast 10M versus 10.053M prior.

Above all, the Fed’s verdict and how it deals with the neutral rate will be crucial for the EUR/USD traders to watch for clear directions.

Technical analysis

Failure to cross the 0.9880-90 hurdle comprising the previous resistance line from March 31 and the 50-DMA, directs EUR/USD towards a convergence of the 21-DMA and monthly ascending trend line, around 0.9830.