EUR/USD: Bulls battle 200-day EMA ahead of US PCE Inflation

  • EUR/USD holds onto Thursday’s recovery moves, up for first weekly gain in four.
  • US dollar ignores firmer Treasury yields on fears of Fed’s preferred inflation gauge confirming hawkish tilt.
  • Risk appetite remains positive as Biden’s stimulus joins EU-UK trade optimism to battle Fed’s action, covid woes.
  • German GfK Consumer Confidence, Fedspeak will also burden market watchers.

EUR/USD rises for the second consecutive day, up 0.08% around 1.1940, heading into Friday’s European session. The currency major pair cheers upbeat market sentiment, as well as the US dollar pullback, as bulls attack the key Exponential Moving Average (EMA). It should, however, be noted that the monthly outcome of the US Federal Reserve’s (Fed) preferred inflation data probe traders of late.

Fears of the US Personal Consumption Expenditure (PCE) inflation figures confirming the Fed’s hawkish signals, flashed the previous week, keep the US dollar chained ahead of the key data. In doing so, the greenback shrugs off a three-day uptrend of the US T-bond yields.

US President Joe Biden’s ability to deliver promised stimulus, despite a smaller sized outlay and lack of details, initially favored market sentiment. Following that, comments from German Diplomat Peter Almaier suggesting the improvement in the EU-US trade relations after a few years of differences. Germany Economy Minister said, “Talks in Washington showed a window of opportunity to resolve differences and he expected the US and European Union (EU) could resolve differences over steel and aluminum tariffs by the end of the year.”

Meanwhile, the Fed’s recalling of the pandemic-led relief measures for the large banks and fears of Delta Plus variant of the covid probe the risk-on mood. Additionally, a lack of major data/events and Australia’s local lockdowns, as well as the EU’s rejection to have a summit with Russian leader Vladimir Putin, also challenges the risk appetite.

It’s worth noting that these plays keep S&P 500 Futures on the front foot near an all-time high but the US dollar index (DXY) snaps a two-day uptrend by the press time.

In addition to the mixed catalysts and the US data, comments from the Fed policymakers will also be the key to follow for fresh impulse. Should the US PCE data confirm bullish forecasts, EUR/USD may trim weekly gains.

Also read: US May PCE inflation preview: Data likely to reaffirm FOMC’s hawkish tilt

Technical analysis

EUR/USD buyers attack 200-day EMA amid receding bearish bias of MACD. The pair’s higher low formation also favors the bulls. Though, February lows near 1.1955 and a horizontal area comprising March highs and May’s low, near 1.1985-90, test further upside. Meanwhile, the pair’s downside break of 1.1900 could direct sellers to the monthly bottom surrounding 1.1850-45.

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