EUR/USD steadies around 1.0550 as traders await German data, US inflation

• EUR/USD probes two-day downtrend amid inactive markets, retreat from intraday high of late.
• Fears of economic recession in the bloc joins mixed concerns surrounding US CPI to challenge EUR/USD moves.
• Germany’s ZEW sentiment data, final readings of HICP could entertain traders ahead of the key US inflation number.

EUR/USD remains on the back foot around 1.0550, despite recent inaction, as markets await the US inflation data during early Tuesday. The major currency pair’s latest inaction could be linked to the mixed signals concerning the US Consumer Price Index (CPI) for November. However, economic fears surrounding the Euro Area keep the bears hopeful.

Concerns surrounding Europe’s ability to successfully manage to survive through the winter, amid the Russia-linked energy crisis, seem to challenge the Euro buyers. Even so, European Commission President Ursula von der Leyen said in a press conference on Monday that Europe's energy supply will be safe this winter, as reported by Reuters. "Despite the action that we have taken, we might still face a gap of up to 30 billion cubic metres (bcm) of gas next year," she added and called on EU members to adopt the energy proposals swiftly. The same raise geopolitical fears as Russian President Vladimir Putin has already rejected to supply oil to countries supporting the EU-backed oil price cap.

Elsewhere, a slump in the one-year inflation precursor from the New York Fed contrasts with the upbeat inflation expectations for the 5-year and 10-year reported by the St. Louis Federal Reserve (FRED) data. That said, the latest prints of the 5-year and 10-year inflation expectations portray a rebound to 2.28% and 2.35% respectively. On the same line, the last week’s downbeat prints of the United States Producer Price Index (PPI) also hinted at softer US inflation but the University of Michigan’s (UoM) Consumer Sentiment Index, as well as the US ISM Services PMI and inflation expectations from the UoM Survey, suggested firmer prints of the US CPI.

On a broader front, the recently hawkish bias over the Federal Reserve (Fed) versus the European Central Bank (ECB) officials’ cautious tone, mainly due to the recession woes, seems to weigh on the EUR/USD prices. However, mixed risk catalysts and optimism over China’s Covid moves join sluggish markets to challenge the pair’s momentum ahead of the key data.

Amid these plays, the US 10-year and two-year Treasury bond yields print the first daily loss in four around 3.59% and 4.36% in that order while the S&P 500 Futures print mild losses near 4,020 despite strong Wall Street close on Monday. It should be noted that the oil price improved and the US Dollar Index (DXY) eased but the traders remain cautious overall.

Looking forward, Germany’s ZEW Sentiment numbers for December and final prints of the November month Harmonized Index of Consumer Prices (HICP), expected to confirm 11.3% YoY initial forecast, could offer immediate moves ahead of the US CPI data. The market forecasts for the headline CPI for November signal a softer print of 7.3% YoY, versus 7.7% prior figure, while the monthly CPI may ease to 0.3% compared to 0.4% previous readings. It should be noted that the CPI ex Food & Energy appears to be the key and is expected to be unchanged at 0.3% MoM, which can please the DXY buyers and weigh on EUR/USD prices in case of a firmer print.

Technical analysis

Repeated failures to cross the 61.8% Fibonacci retracement level of the pair’s downside between late March and September 28, around 1.0555, joins bearish RSI divergence to keep sellers hopeful.

The bearish RSI divergence could be witnessed when the price makes a higher high but the oscillator makes a lower high, suggesting the lack of buying momentum and likely entry of bears.