EUR/USD: Mildly bid around mid-0.9700s as DXY retreats despite hawkish Fed wagers

• EUR/USD reverses Friday’s pullback from one-week high.
• Talks over ECB’s QT, light calendar and optimism at the UK favor pair buyers amid sluggish session.
• The absence of major data/events can disappoint momentum traders.
• Buyers have a tough road ahead considering the optimism over Fed’s next move.

EUR/USD picks up bids to 0.9750 as bulls try to regain control, after a two-week downtrend, during early Monday morning in Europe. In doing so, the major currency pair cheers the broad US dollar weakness amid a sluggish start to the week.

That said, the US Dollar Index (DXY) pares Friday’s heavy gains around 113.00 amid an absence of major data/events. Also exerting downside pressure on the greenback’s gauge versus the six major currencies the easing fears of the UK market’s collapse, especially after the recent appointment of Jeremy Hunt as the new British Chancellor, as well as keeping the tax rate unchanged.

In doing so, the DXY ignores the hawkish Fed bets and the recently upbeat comments from International Monetary Fund (IMF) Chief Economist Gita Gopinath. That said, IMF’s Gopinath recently stated that the Fed should stay the course in view of the economic data. The policymaker also mentioned that it is right for the European Central Bank (ECB) to normalize its monetary policy by end of year and then tighten next year.

Elsewhere, CME’s FedWatch tool highlights 96% chance of the Fed’s 75 bps rate hike in November after Friday’s upbeat US Retail Sales and Michigan Consumer Sentiment Index, as well as hawkish comments from St. Louis Federal Reserve Bank President James Bullard.

On the other hand, ECB policymakers have also been optimistic but the bloc’s tussle with Russia, over Ukraine, seems to raise doubts about the central bank’s next move.

Amid these plays, the bond yields retreat from the recently flashed tops while the stock futures print mild gains and weigh on the US dollar.

Moving on, a light calendar may restrict immediate EUR/USD moves but the risk catalyst will be important as traders struggle to justify the easing economic fears.

Technical analysis

A convergence of the 100-EMA on the four-hour chart and the 38.2% Fibonacci retracement level of the pair’s September 12-27 downside, around 0.9790, appears a tough nut to crack for EUR/USD bulls.