EUR/USD steadies below 1.0900 as Fed hawks, US data supersede ECB optimists, EU/US inflation clues eyed

• EUR/USD bears flirt with the weekly low as markets await the key EU/US data.
• ECB hawks fail to impress markets amid mixed figures at home, looming German recession.
• US data came in mostly upbeat and back Fed Chair Powell’s “two more rate hike” concerns, underpinning US Dollar.
• Eurozone HICP, US Core PCE Price Index will be crucial to watch for clear directions as Euro pair pokes key support line.

EUR/USD grinds near the weekly low surrounding 1.0860 as bears attack the monthly support line amid early Friday in Asia. In doing so, the Euro pair portrays the typical pre-data anxiety as the top-tier inflation numbers from the Eurozone and the US loom. Also putting a floor under the major currency pair could be the market’s risk-on mood.

EUR/USD dropped the most in a week the previous day to refresh the weekly bottom after the US data marked mostly upbeat outcomes but the European counterpart came in mixed. Not only that, but the comparatively more hawkish Federal Reserve (Fed) signals versus the market’s lack of acceptance of the European Central Bank (ECB) policymakers’ optimism also weigh on the Euro pair.

That said, the Eurozone Consumer Confidence matched -16.1 market forecast and prior for June while Business Climate eased to 0.06 from 0.19 prior for the said month. Further, the bloc’s Economic Sentiment Indicator for June eased to 95.3 versus analysts’ estimations of 96.0 and 96.5 previous readings. Additionally, the old continent’s Industrial Confidence deteriorated but Service Sentiment came in better-than-forecast for the said month.

However, Germany’s inflation per the Consumer Price Index (CPI) rose to 6.4% YoY in June from 6.1% in May and 6.3% expected. On the same line, the European Central Bank’s (ECB) favorite inflation gauge, namely the Harmonised Index of Consumer Prices (HICP) also jumped to 6.8% on a yearly basis from 6.3% prior and 6.7% market forecasts.

Elsewhere, European Central Bank (ECB) policymaker and Bank of Spain's Governor Pablo Hernandez de Cos said on Thursday that the ECB September meeting is absolutely open regarding interest rates. Earlier in the week, a slew of ECB Policymakers including President Christine Lagarde spoke at the ECB Forum and advocated for higher rates, with most signaling a rate hike in July being undoubtful.

It’s worth noting that the ECB’s Economic Bulletin said, “Overall, changes in price competitiveness since the pandemic appears to have neither aggravated nor further unwound external imbalances.”

On the other hand, the US Gross Domestic Product (GDP) Annualized, mostly known as the Real GDP, grew at the 2.0% rate for the first quarter (Q1) of 2023 versus the 1.3% initial estimation. Further, the US Weekly Initial Jobless Claims slumped to 239K for the week ended on June 23 compared to 265K expected and revised prior. However, the Personal Consumption Expenditure (PCE) Price for Q1 2023 eased to 4.1% QoQ from 4.2% expected and prior whereas the Pending Home Sales slumped to -2.7% MoM for May compared to 0.2% expected and -0.4% prior (revised).

Further, Fed Chair Jerome Powell spoke at the Fourth Conference on Financial Stability hosted by the Bank of Spain, in Madrid, while saying, “A strong majority of Fed policymakers expect two or more rate hikes by year-end.” Additionally, Atlanta Federal Reserve President Raphael Bostic told reporters regarding future rate increases, as reported by Reuters, that he doesn’t see as much urgency to move as stated by others, including Chairman Jerome Powell. The policymaker, however, recently took a U-turn while saying, “I think it's unambiguous that inflation has fallen considerably."

Amid these plays, Wall Street closed positive but the US 10-year and two-year Treasury bond yields also rallied while the US Dollar Index (DXY) refreshed its weekly top before retreating to 103.40.

Looking ahead, the first readings of Eurozone HICP and Consumer Price Index (CPI) inflation numbers for June will precede the US Core PCE Price Index for May to entertain the EUR/USD pair traders. While the market forecasts don’t flash any alarming signals for the scheduled data, downbeat figures of the US inflation and a surprise positive in the Eurozone data may trigger the major currency pair’s rebound from the short-term key support.

Technical analysis

Although the EUR/USD pair’s daily closing below the 50-DMA, around 1.0870 by the press time, keeps the sellers hopeful, an upward-sloping support line from late May, close to 1.0860 restricts the quote’s immediate downside.