EUR/USD pares weekly losses above 1.0700 amid Fed vs. ECB battle, German inflation, EU economic forecasts eyed

• EUR/USD picks up bids to snap four-day downtrend amid quiet markets.
• Cautious optimism, hawkish ECB comments please buyers ahead of the key data.
• Fed policymakers, US diplomats also defend higher rates and probe EUR/USD bulls.
• Preliminary readings of Germany’s monthly HICP, quarterly EU economic forecast will be crucial for intraday traders.

EUR/USD consolidates weekly moves as it renews its intraday high around 1.0730 during early Thursday morning. In doing so, the major currency pair prints the first daily gains in five while bouncing off the 50-DMA support amid sluggish initial trading hours of the day.

Behind the moves could be the recently hawkish commentary from the European Central Bank (ECB) officials, as well as the cautious optimism in the markets. Adding strength to the rebound are the downbeat US Treasury bond yields and a pullback in the US Dollar.

The latest rebound might also be termed as the preparations for the key data, namely the first readings of Germany’s headlines inflation gauge and European Commission’s (EC) quarterly economic forecasts. Even so, Federal Reserve (Fed) and US diplomats’ defense of the higher interest rates seems to challenge the EUR/USD buyers amid an inactive session.

On Wednesday, ECB monetary policy board member Klaas Knot said that headline inflation appears to have peaked but added that keeping the current pace of hikes into May could well be needed if underlying inflation does not materially abate.

On the other hand, Fed Governor Christopher Waller joined New York Federal Reserve President John Williams and another Fed Governor Lisa Cook to highlight inflation fears and signaled higher rates, while also pushing back the talks of rate cuts in 2023.

Not only the Fed policymakers but US diplomats were also highlighting concerns that defend the higher Fed rates and weighed on the EUR/USD price. Among them, US Treasury Secretary Janet Yellen mentioned, “While inflation remained elevated, there were encouraging signs that supply-demand mismatches were easing in many sectors of the economy.” Elsewhere, US President Joe Biden said during a PBS interview that there will be no US recession in 2023 or 2024.

Elsewhere, easing fears surrounding the US and China tension over the balloon shooting seems to have joined the lack of major negatives from elsewhere to underpin the mildly positive mood and propel the EUR/USD as the Euro traders await crucial data.

Amid these plays, the US 10-year Treasury bond yields reversed from a one-month high to snap a three-day uptrend on Wednesday, pressured around 3.61% at the latest. The same helped S&P 500 Futures to ignore Wall Street’s downbeat closing and remain mildly bid as of late.

Looking forward, the first prints of Germany’s Harmonized Index of Consumer Prices for January, expected 10.0% versus 9.6% prior, will be the first to direct EUR/USD traders. Following that, quarterly readings of the European Commission’s Economic Growth Forecasts and the US Weekly Initial Jobless Claims will be eyed for fresh impulse.

Overall, EUR/USD rebound appears elusive ahead of the key data/events, especially amid hawkish Fed concerns.

Technical analysis

EUR/USD bounces off 50-DMA support surrounding 1.0700 but the recovery needs validation from a three-week-old horizontal resistance area near 1.0765-70.