EUR/USD rebound approaches 1.1000 as US Dollar fades recovery, ECB’s Lagarde, PMIs in focus

• EUR/USD picks up bids from intraday low amid two-day pullback from the highest level in a year.
• Doubts about US debt default, hawkish ECB talks and economic recovery hopes underpin Euro pair’s corrective bounce.
• Mostly upbeat US data, Fed comments push back odds of Fed policy pivot, rate cuts and defend EUR/USD bears.
• Speech from ECB’s Lagarde can entertain intraday traders, preliminary PMIs are the key.

EUR/USD consolidates intraday losses around 1.0980 as pair traders seek more clues to extend the previous day’s fall amid a sluggish Monday morning in Europe. In doing so, the Euro pair cheers the US Dollar’s failure to defend the corrective bounce from the one-year low amid doubts about the US economic recovery amid the deadlock over the government debt ceiling extension. Adding strength to the Euro pair’s rebound could be the recently hawkish comments from the European Central Bank (ECB) officials.

While the US Democrats and Republicans are head-to-head over whether to extend the debt ceiling, currently around the record high, or not, ECB President Christine Lagarde showed “huge confidence” the US will not allow the country to default on its debt.

On the other hand, the market’s pricing of the ECB’s 0.25% rate hike and the policymakers’ resistance to utter policy pivot or rate cut, except Governing Council member Mario Centeno, also keeps the EUR/USD buyers hopeful. Adding strength to the Euro pair’s recovery moves are hopes that the bloc will be able to avoid the recession.

Even so, the recently firmer US data and hawkish Fed talks challenge the EUR/USD bulls amid a sluggish start to the key week comprising the preliminary readings of PMIs for April.

On Friday, a wider-than-expected fall in US Retail Sales failed to supersede upbeat figures from the US Industrial Production and University of Michigan's (UoM) Consumer Confidence Index and allowed the US Dollar to rebound. Not only the data but hawkish comments from the Fed policymakers also enabled the greenback to pare the previous losses. Amid these plays, the CME’s FedWatch tool suggests an almost certain case of the US central bank’s 0.25% rate hike in May. That said, the interest rate futures also tame the odds of the rate cuts in late 2023, as well as support the longer halt to the rate hike trajectory after the upcoming rate lift.

Against this backdrop, the S&P 500 Futures print 0.20% intraday gains as it reverses the previous day’s pullback from the highest levels since early February around 4,172. That said, the US 10-year and two-year Treasury bond yields pare the previous week’s 3.0% gains with minor losses around 3.52%% and 4.10% respectively.

Moving on, ECB President Lagarde is scheduled to speak one more time in the day and can entertain EUR/USD traders. However, major attention will be given to this week’s PMIs to reconfirm the economic recovery hopes, as well as prod the hawkish Fed bets and the latest falling prices.

Technical analysis

EUR/USD pair’s latest rebound takes place from a two-week-old previous resistance surrounding 1.0970, backed by upbeat oscillators on the shorter timeframes. However, the quote’s previous decline below the horizontal area comprising multiple levels marked since early February, as well as a one-week-old ascending trend line, near 1.1030-40, keeps bears hopeful.