EUR/USD: Bears in control around 1.0600 ahead of Fed’s preferred inflation gauge

• EUR/USD remains depressed around seven-week low, fades late Thursday’s corrective bounce.
• Chatters that markets priced in higher rates seemed to have triggered rebound from multi-day low.
• Hawkish Fed concerns, geopolitical headlines keep Euro bears hopeful ahead of the key US Core PCE data.

EUR/USD holds lower ground near 1.0600, following a corrective bounce off multi-day bottom that ended up positing the four-day downtrend to early Friday morning in Asia. In doing so, the major currency pair justifies the broad US Dollar strength amid upbeat US data, as well as a pullback in the US Treasury bond yields ahead of the key US inflation clues.

That said, traders’ factoring in the multiple rate hikes seems to underpin the corrective pullback in the US Treasury bond yields and the US Dollar. “US Treasury yields slid in choppy trading on Thursday, with investors already factoring in strong economic data that has supported expectations of a few more interest rate hikes by the Federal Reserve this year,” said Reuters.

Alternatively, comments from US Treasury Secretary Janet Yellen signaled that the US will resume discussions with China on economic issues 'at an appropriate time' whereas China’s Commerce Ministry urged the US to create good conditions for trade with China. The news managed to trigger the pair’s bounce off a multi-day low on Thursday. On the same line were statements from China’s commerce ministry spokesperson who said, the recovery momentum in the country’s consumer market was strong in January while also adding, “The government will take more measures to revive and expand consumption.”

However, the latest headlines suggesting China’s readiness to supply combat drones to Russia and the US Senators’ push to halt Chinese carriers overflying Russia on US flights seem to renew the market fears and weigh on the AUD/USD prices.

Thursday’s US data dump signaled that the second reading of the Gross Domestic Product Annualized, better known as Real GDP, eased to 2.7% for the fourth quarter (Q4) versus 2.9% first forecasts. However, the Personal Consumption Expenditure (PCE) Price and Core PCE for the said period rose to 3.7% and 4.3% QoQ versus 3.2% and 3.9% respective first estimations. Additionally, the Chicago Fed National Activity Index improved to 0.23 in January from -0.46 (revised), versus 0.03 analysts’ estimates. On the same line, Initial Jobless Claims also eased to 192K for the week ended on February 17 from 195K (revised) prior, compared to 200K expected. Hence, the latest set of the US data has been following the upbeat economics released so far in February and has helped the US Dollar to remain firmer, after early Thursday’s retreat.

On the other hand, Eurozone Core Inflation refreshed a record high to 5.3% YoY for January, per the Core Harmonized Index of Consumer Prices measures, versus 5.2% expected and prior.

Against this backdrop, Wall Street closed mildly positive and the US Treasury bond yields retreat from the three-month high but the US Dollar Index (DXY) remains firm ahead of the key data.

Looking forward, a light calendar in the Asia-Pacific zone, as well as in Europe, highlights the US data for fresh impulse. As a result, the Personal Consumption Expenditures (PCE) Price Index will be the key, expected to have risen by 4.9% YoY in January, versus 5% prior. Further, the more relevant Core PCE Price Index, known as Fed’s favorite inflation gauge, is likely eased to 4.3% YoY, compared 4.4% prior.

Also read: US PCE Inflation Preview: Can the US Dollar turn bullish for good?

It should be noted that the second-tier German data will also be important to watch for extra directives.

Technical analysis

A convergence of the 100-day Exponential Moving Average (EMA) and an 11-week-old ascending support line, close to 1.0550 by the press time, appears a tough nut to crack for the EUR/USD bears.