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18.05.2022 06:22

EUR/USD seeks fresh clues around 1.0550 after the biggest daily gain in two months

  • EUR/USD steadies around weekly top following the heavy run-up.
  • Hawkish ECBspeak, EU GDP data favored Euro bulls amid market’s cautious optimism.
  • US dollar stayed pressured despite firmer US statistics, upbeat yields.
  • Second-tier data may entertain traders, risk catalysts are more important for fresh impulses.

EUR/USD bulls take a breather around mid-1.0500s, the weekly high, after positing the heaviest daily jump since early March. That said, the major currency pair has been trading inside a 30-pip range during the last hours of Tuesday, after a stellar rise, poking the range high surrounding 1.0550 as Asian traders brace for Wednesday’s work,

A fresh round of hawkish comments from the European Central Bank (ECB) policymakers has been the key support to the regional currency. Among them, Tuesday’s comments from European Central Bank (ECB) Governing Council member Klaas Knot was the most hawkish and fuelling the EUR/USD prices. ECB’s Knot told the Dutch TV that a 50 basis points (bps) rate hike should not be excluded if data in the next few months suggest that inflation is broadening and accumulating. On the same line were comments from European Central Bank Governing Council member Mario Centeno said on Tuesday that the normalization of monetary policy is desired and must happen, reported Reuters.

Additionally favoring the EUR/USD bulls was a slightly better-than-forecast reading of the preliminary Eurozone GDP for Q1 2022. The bloc’s GDP rose past 5.0% YoY to 5.1% while also rising above 0.2% QoQ expectations to 0.3%.

On the other hand, Fed Chairman Jerome Powell repeated his usual push for the 50 bps rate hike and didn’t surprise markets, despite pausing equity bulls. However, St Louis Fed President and outspoken hawkish FOMC member James Bullard’s preference for a 50 bps move, versus the previous support to the 75 bps action, seemed to have weighed on the US dollar. That said, the US Treasury yields remained firmer, up nearly 10 bps to 2.99% at the latest.

Talking about the US data, US Retail Sales rose at a pace of 0.9% MoM in April, slightly better than the expected pace of 0.7% but softer than the upwardly revised 1.4% growth (from 0.5%). US Retail Sales ex Autos, popularly known as Core Retail Sales, rose 0.6% MoM in April versus the 0.4% expected gain. It is worth noting that there was a big upward revision to the previous month’s Core Retail Sales figures, to 2.1% MoM versus the prior estimate of 1.1%. 

Elsewhere, improvement in covid conditions in China previously spread optimism in Asia, backed by softer US data. However, fears emanating from the Russia-Ukraine tussles challenge the bulls.

Moving on, final readings of Eurozone HICP for April precedes the US housing numbers to entertain EUR/USD traders. However, major attention will be given to talks of rate hikes, inflation and growth, not to forget covid and geopolitics, for clear directions.

Technical analysis

A previous support line from late 2021 challenges immediate EUR/USD upside around 1.0550 ahead of the 21-DMA hurdle surrounding 1.0575. Meanwhile, a fresh downside can aim for April’s low of 1.0471.

 


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