Schnabel from the ECB sounds hawkish, but not as much Fedspeak. US data came back mixed.
While yields are down, USD buyers remain optimistic.
Headlines from Russia and Eurozone Industrial Production are also important for clear guidance.
EUR/USD accepts offers to refresh the daily low at 1.1345, which is down 0.11% intraday as pair traders consolidate Wednesday’s Asian session, which saw the largest daily jump in two weeks.
Major currency pair sellers appear to respect the market’s cautious optimism while following the latest developments around Russia as well as mixed concerns about the US Federal Reserve’s (Fed’s) next move.
The quote overlooks positive comments made by Isabel Schnabel (ECB Executive Board Member), which were published on Financial Times (FT), Tuesday night. According to FT, the policymakers stated that “the risk of not acting soon enough has increased.” The ECB’s Economic Bulletin raised fears about higher inflation.
This could be due to increasing odds of the Fed raising its rate by 0.50% in March and firmer US inflation expectations as reflected in the 10-year breakeven inflation rate as per the St. Louis Federal Reserve data. The BOE FedWatch Tool indicates around 60% probabilities for a 50 basis point (bps) rate rise in March, but the Reuters poll highlights the uncertainty. Reuters reported that the US Federal Reserve will begin its tightening cycle with a 25-basis point interest rate increase in March, but a growing number of people believe it will choose to make a half-point more aggressive move to tampdown inflation.
However, the latest US data came back mixed. The US Producer Price Index (PPI), which showed a strong factory-gate inflation figure, supported the Fed’s concerns about rate hikes. The PPI rose above 9.1% YoY expectations, to 9.7%, compared to upwardly revised 9.8% in January. Meanwhile, the Producer Price Index ex Food & Energy (also known as Core PPI) rose to 8.3% versus 7.9% consensus. The NY Empire State Manufacturing Index fell below 12.15 forecasts, to 3.1, as compared with -0.7 in previous readouts.
The US Treasury yields are being affected by the hope that there will be no further escalation of the Russia-Ukraine tussles. This is after Moscow has removed some of its troops. The gains of Wall Street benchmarks are not being followed by the US stock Futures. The US Dollar Index(DXY), despite lower yields, defends the 96.00 threshold. This is primarily due to market anxiety.
The Eurozone Industrial Production for December (expected 0.3% MoM versus 2.0% prior) will provide immediate clues ahead the January Retail Sales figures from the US. These sales are expected to reverse the -1.9% contraction and show +2.0% growth. The Federal Open Market Committee Minutes will also be important as traders jockey over clues about a 0.50% rate hike.
Analyse technique
Failure to publish a clear daily closing above the 50-day EMA at 1.1355 by press time favors EUR/USD buyers to target multiple support levels of around 1.1280.
