EUR/USD skates on thin ice around 1.1050 as Euro traders fear Fed, ECB policy pivot after July

• EUR/USD remains sidelined at two-week low, prods six-day downtrend.
• Downbeat Eurozone, German statistics challenge ECB hawks and favor Euro sellers amid welcome United States data.
• Concerns about Federal Reserve’s priced-in 0.25% rate hike, inability to fuel interest rates further prod pair bears.
• Risk catalysts, Treasury bond yields eyed for clear directions ahead of Fed showdown.

EUR/USD aptly portrays the market’s cautious mood ahead of the all-important Federal Reserve (Fed) monetary policy meeting, making rounds to 1.1050 heading into Wednesday’s European session. In doing so, the Euro pair also justifies the market’s mixed bias about the Fed and the European Central Bank (ECB) due to the recently unimpressive data from the bloc, as well as from the US, amid fresh challenges to sentiment.

That said, the US Dollar’s pause to the previous pullback from a two-week high, backed by upbeat yields and a cautious mood, appears challenging the EUR/USD pair’s rebound from the multi-day low. However, the greenback’s inability to rise, due to the fears of no more space for the Fed to lift interest rates, seems to put a floor under the Euro pair.

It should be noted that the downbeat Eurozone and German statistics have been the major cause for the EUR/USD pair’s weakness in the last six days as the same challenges the ECB hawks even if they show readiness to increase the rates to battle the inflation woes.

On a different page, news suggesting the fresh US-China tensions joined the pre-Fed consolidation to weigh on the EUR/USD price. Though, the International Monetary Fund’s (IMF) upward revision to the global growth forecasts join the previously released downbeat data from top-tier economies, which in turn flagged concerns of a sooner end to rate hike cycle, defend optimists and test the Euro bears.

On Tuesday, Germany’s IFO Business Climate Index dropped to 87.3 for July versus 88.0 expected and 88.6 prior while the Current Economic Assessment came in as 91.3 for the said month, compared with June’s 93.7 and 93.0 expected. Further, the IFO Expectations Index, a gauge conveying the firms’ projections for the next six months, fell to 83.5 for July versus 83.8 prior and 83.0 market forecasts. Following the mostly downbeat German data, the IFO Economist Klaus Wohlrabe said that the “German GDP likely to shrink in the 3rd quarter.” IFO’s Wohlrabe also added that the weak phase of the German economy is going to be extended. Elsewhere, the European Central Bank’s (ECB) quarterly survey of 158 big banks revealed that firms' demand for credit dropped to the lowest since the survey started in 2003.

Talking about the US data, the US Conference Board (CB) Consumer Confidence jumped to 117.0 for July from 110.10 prior (revised) versus market forecasts of 112.10. The survey details unveiled that the one-year consumer inflation expectations edged lower to 5.7% while the Present Situation Index and  Consumer Expectations Index rose to 160.0 and 88.3 in that orders for the said month. That said, the US Housing Price Index for May reprinted the 0.7% MoM growth compared to analysts’ estimation of 0.2% whereas the S&P/Case-Shiller Home Price Indices also repeated the -1.7% YoY figures for the said month versus -2.2% expected.

Against this backdrop, S&P500 Futures grinds near the one-week high marked the previous day whereas the US 10-year and two-year Treasury bond yield print mild gains around a two-week high registered Tuesday, close to 3.89% and 4.88% in that order by the press time.

Looking forward, a light calendar in Eurozone will join the pre-Fed inaction to restrict the EUR/USD moves. However, the risk catalysts and second-tier US data may entertain the traders. That said, the Euro pair fades downside bias but the pair’s recovery hinges on how well Fed Chair Jerome Powell manages to defend hawks.

Also read: Federal Reserve Preview: Powell can play three distinct cards, each with a different US Dollar move

Technical analysis

A clear U-turn from the 10-month-old previous support line, now resistance around 1.1290, joins the bearish MACD signals to keep the EUR/USD sellers hopeful.