EUR/USD grinds near mid-1.0700s as Fed vs. ECB play gains attention

• EUR/USD struggles to defend the first weekly gain in five, retreats of late.
• ECB’s 0.25% rate hike is mostly given but Fed’s pause hinges on US inflation despite bearing 70% market bets.
• Downbeat EU, US data prods policy hawks but inflation woes need higher rates.
• Tuesday’s US CPI will kick-start the busy calendar and volatile week.

EUR/USD renews intraday low near 1.0750 as it pares the first weekly gain in five amid a cautious mood ahead of the key week comprising the European Central Bank (ECB) and the US Federal Reserve (Fed) monetary policy decisions. Apart from the pre-event anxiety, the recent challenges to the sentiment and reassessment of the previous bias about the ECB and the Fed’s next move also weigh on the Euro pair.

That said, the US Dollar Index (DXY) dropped in the last two consecutive weeks to 103.56 at the latest, grinding near the bottom by the press time, as downbeat prints of the US activity numbers for May joined disappointing employment clues to weigh on the US Dollar, despite looming economic fears. That said, the latest United States Initial Jobless Claims jumped to the highest levels since September 2021 whereas the US ISM Services PMI, S&P Global PMIs and Factory Orders also printed softer outcomes for May and pushed back the Fed hawks, which in turn weighed the US Dollar.

Following the downbeat data, market players placed higher bets on the US Federal Reserve’s no rate change decision in its June 13-14 policy meeting. That said, the CMEGroup's Fed watch tool suggests around 72% chance of the Fed rate being unchanged to the 5%-5.25% range.

On the other hand, growth numbers from the Eurozone and Germany, as well as final readings of the inflation catalysts haven’t been impressive to justify the ECB policymakers’ hawkish bias. That said, concerns about the economic slowdown in the old continent unearth after the recently downbeat statistics, which in turn suggests that the ECB might not be able to increase the rates past this week’s 0.25% rate hike.

It’s worth noting that the inflation clues from Germany and the US may entertain the EUR/USD pair traders as higher numbers can keep the policy hawks hopeful.

Elsewhere, fears of slower economic transition on a broader level join the fears of the US-China tension and higher yields to prod the EUR/USD traders. Amid these plays, Wall Street and yields closed higher but the market sentiment remains divided as the key week begins.

Also read: EUR/USD Weekly Forecast: US CPI, the Fed and the ECB grant action next week

Technical analysis

Failure to cross the 50-day Exponential Moving Average (EMA) hurdle of around 1.0810 directs EUR/USD towards retesting the 200-day EMA support, near 1.0690 by the press time.