EUR/USD eases below 1.0850 as ECB hawks step back, Fed bets increase amid cautious optimism

• EUR/USD retreats from intraday high as US Dollar pares recent losses.
• ECB’s Lagarde tries to defend hawkish bias but says to have covered large chunk of journey toward taming inflation.
• Fed Chair Jerome Powell cites banking crisis to ease pressure on the bank to raise rates, Fed’s Kashkari sounds defensive.
• US President Joe Biden’s comments on Sino-American ties, US debt ceiling favor recent sentiment and US Dollar.

EUR/USD extends pullback from intraday high as it drops to 1.0810 heading into Monday’s European session. That said, the Euro pair’s latest rebound could be linked to the cautious optimism surrounding the US-China ties, as well as hopes of witnessing no US default. Further, mixed comments from the European Central Bank (ECB) President Christine Lagarde also weigh on the major currency pair.

That said, US President Joe Biden said at the end of the Group of Seven (G7) summit in Japan on Sunday, that he expected ties with China to improve “very shortly” after a spat over an alleged spy balloon earlier this year derailed relations, per Bloomberg. On the contrary, China’s banning of Micron Technology products, per the Wall Street Journal (WSJ), flags fears of the US-China tussles.

On a different page, US President Biden also conveyed optimism about his discussion with Republican House Speaker Kevin McCarthy went well while also adding that they will again talk on Monday.

Earlier in the day, ECB President Christine Lagarde crossed wires via an interview on the Buitenhof TV show aired Sunday wherein she said, “I think we covered a large chunk of the journey toward taming inflation and bringing it back to our target.”

On the contrary, Federal Reserve Chairman Jerome Powell highlighted inflation fears on Friday but also stated that the recent banking crisis, which led to tighter credit standards, has eased the pressure to hike interest rates. Even so, the market’s bets of a 0.25% Fed rate hike in June increased and the calls for a rate cut in 2023 have gone down due to the last week’s upbeat US economics and hawkish comments from the Fed (Fed) officials.

Against this backdrop, the US Dollar Index (DXY) picks up bids to pare intraday losses around 103.15 while S&P500 Futures also reverse the initial downside while making rounds to 4,205, indecisive around the yearly high. Further, the US Treasury bond yields struggle for clear directions but stay pressured of late.

Moving on, Eurozone Consumer Confidence may direct intraday moves of the EUR/USD pair but major attention will be given to the first readings of the May month PMIs, as well as US debt ceiling talks for a clear guide.

Technical analysis

EUR/USD struggles to defend the upside break of the 100-DMA, around 1.0800 at the latest, within a fortnight-long descending trend channel, currently between 1.0860 and 1.0715. That said, the RSI (14) line’s rebound from nearly oversold conditions allows buyers to remain hopeful even as bearish MACD signals and the falling channel prods Euro bulls.