EUR/USD slides to 1.0850 as German/US data intensifies ECB vs. Fed battle

• EUR/USD takes offers to refresh intraday low, reverses the previous day’s bounce off two-week low.
• US data amplifies Fed’s dovish hike concerns but downbeat German statistics also probe ECB hawks and probe EUR/USD rebound.
• Dicey markets ahead of PMIs, Fed trigger profit booking moves.
• Fed Chair Powell’s ability to defend hawks will be at test, rising wedge teases pair bears.

EUR/USD renews intraday bottom around mid-1.0800s as it reverses the previous day’s recovery moves during early Wednesday. In doing so, the major currency pair portrays the market’s anxiety ahead of the key Federal Open Market Committee (FOMC) monetary policy meeting. Also weighing on the quote could be the economic challenges to the bloc emanating from Germany, as well as the mixed data from the US and fears that Fed Chairman Jerome Powell will defend hawks anyhow.

On Tuesday, the preliminary readings of the Eurozone fourth-quarter (Q4) Gross Domestic Product (GDP) grew 0.1% QoQ versus 0.0% expected and 0.3% prior. The YoY prints also painted a rosy picture of the bloc as it rose past 1.8% market consensus to 1.9%, versus 2.3% prior. However, German Retail Sales plunged by 5.3% MoM in December, much worse than expected. Earlier in the week, German GDP also disappointed the EUR/USD pair traders.

Alternatively, US Q4 Employment Cost Index (ECI) eased to 1.0% versus 1.1% market forecasts and 1.2% prior readings. Further, the Conference Board (CB) Consumer Confidence eased to 107.10 in January versus 108.3 prior. It should be noted that no major attention could be given to the US Chicago Purchasing Managers’ Index (PMI) for January which rose to 44.3 versus 41 expected and 44.9 previous readings.

Elsewhere, firmer earnings data from the industry majors like General Motors, Exxon and McDonald’s pushed back recession woes in the US and propelled the Wall Street benchmarks. That said, the Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq all three reported over 1.0% daily gains the previous day. On the other hand, the US 10-year Treasury bond yields snapped a three-day uptrend while revisiting 3.51% while the two-year counterpart also dropped to 4.20%.

It should be noted that JP Morgan’s annual survey marked easing inflation fears and rising recession woes, which in turn probe the risk profile amid the pre-Fed anxiety. Even so, global rating giant Fitch expects the US Consumer Price Index (CPI) to moderate to mid-3.0% range in 2023 and a high-2.0% range in 2024, which in turn probes the EUR/USD bears.

Amid these plays, the S&P 500 Futures prints mild losses while the US Treasury bond yields remain sluggish and pause the previous day’s pullback. The same allows the EUR/USD pair to brace for the Fed’s dovish hike of 0.25%.

While the 0.25% Fed rate hike is almost given and priced in, the EUR/USD traders will also pay attention to the activity data for January and Jerome Powell’s ability to defend the aggressive rate hikes.

Also read: Federal Reserve Preview: The Good, the Bad and the Ugly, why the US Dollar would rise

Technical analysis

Failure to keep the bounce off the 21-day Exponential Moving Average (EMA), around 1.0800 by the press time, increases the odds of the EUR/USD pair’s confirmation of the three-month-old rising wedge bearish chart pattern by breaking the 1.0775 support.