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EUR/USD retreats to 0.9700 as traders await ECB’s Lagarde, Fed Minutes

  • EUR/USD fades the bounce off a 13-day-old horizontal support.
  • Hawkish ECB commentary, pullback in yields triggered previous corrective bounce.
  • Higher US inflation expectations, risk-off mood keep bears hopeful.
  • Bears eye FOMC Meeting Minutes to confirm high wagers on Fed’s November move, ECB’s Lagarde may struggle to lure buyers.

EUR/USD struggles to defend the latest rebound as it drops back to 0.9710 during Wednesday’s Asian session, following a brief bounce from 0.9670 the previous day. In doing so, the major currency pair helps to term Tuesday’s corrective move as consolidation ahead of today’s key events, namely the Federal Open Market Committee (FOMC) Meeting Minutes and European Central Bank (ECB) President Christine Lagarde’s speech.

The quote’s latest weakness could be attributed to the hawkish comments from US Federal Reserve Cleveland President Loretta Mester as she mentioned that the Federal Reserve needs to hike rates further because inflation has not slowed during her speech.

On the same line could be the International Monetary Fund’s (IMF) latest projections. That said, the IMF lowered the global economic growth forecast for 2023 to 2.7% from 2.9% estimated in July while citing pressures from high energy and food cost, rate hikes as the key catalysts for the move. It’s worth noting that the Washington-based institute left the 2022 growth forecast unchanged at 3.2% versus 6.0% global growth in the 2021″

It should be noted that the hawkish comments from the ECB policymakers and a pullback in the US Treasury yields, after refreshing the multi-day high, appeared to have helped the EUR/USD buyers the previous day.

European Central Bank (ECB) Chief Economist Philip Lane said on Tuesday that the evidence suggests that the euro area is not experiencing a broad-based de-anchoring of medium-term inflation expectations. On the same line was the ECB member and Bank of France’s head Francois Villeroy de Galhau who said they should reach a neutral rate of close to 2% by the end year. It should be noted that Germany’s optimism of passing through the winter even with the current energy crisis and hopes of further stimulus from the European Union, as confirmed by European Union (EU) Trade Commissioner Valdis Dombrovskis on Tuesday, also favored the quote to snap a four-day downtrend the previous day.

While portraying the mood, the Wall Street benchmarks closed mixed after a volatile day while the US 10-year Treasury yields ended Tuesday with mild gains around the multi-month high marked the previous day. At the latest, the S&P 500 Futures print mild gains around a one-week low whereas the US Treasury yields remain mostly unchanged.

Moving on, EUR/USD traders will pay more attention to the Fed Minutes than the speech from ECB’s Lagarde as the bloc is almost doomed while the US central bank has many ways to entertain the pair bears.

Technical analysis

Despite the corrective bounce off fortnight-old horizontal support near 0.9670-65, EUR/USD remains well below the 50-DMA hurdle surrounding 0.9970 amid bearish MACD signals and downbeat RSI (14), which in turn suggests further downside of the pair.