EUR/USD struggles to keep Fed-led gains around 1.0200 amid recession woes, focus on GDP

• EUR/USD grinds higher after posting the biggest daily gains in over a week.
• Fears of economic slowdown challenges post Fed optimism.
• Flash readings of US Q2 GDP will be important ahead of Eurozone GDP announcements.
• Chatters surrounding European gas crisis, German inflation shouldn’t be ignored as well.

EUR/USD bulls seem taking a breather around 1.0200 after the Fed-led rally. In doing so, the major currency pair struggles to keep the pair’s bullish bias during Thursday’s Asian session.

The fears of the US economic slowdown, as portrayed by the US Treasury yield curve, appear to recently challenge the market’s optimism. Reuters mentioned that the US government bond market is sending a fresh batch of signals that investors are increasingly convinced the Federal Reserve's aggressive actions to tame inflation will result in recession. “Some of those moves reversed slightly on Wednesday, with rates at the short end of the curve turning lower on expectations of the Fed being less likely to continue with super-sized hikes,” adds Reuters.

It should be noted that the US 10-year Treasury yields dropped nearly four basis points (bps) to 2.78% while the 2-year bond coupons slumped by 2.58% to 2.98% after the Fed’s 0.75% rate hike. Even so, the gap between the key US bond coupons remains the widest since 2000 and in turn hints at the US recession woes.

That said, the US Federal Reserve (Fed) matched market forecasts by announcing a 75-bps rate increase. The underlying reason for the pair’s weakness could be attributed to Fed Chairman Jerome Powell’s speech as it signaled that the hawks are running out of fuel. Key comments from the Fed’s Powell were that the rates had reached neutrality, so there won't be any more forward guidance, as well as rates will be decided meeting by meeting.

Elsewhere, optimism about the bloc’s capacity to gain energy supplies outside Russia, despite signals of further hardships for the old continent due to the further deterioration in the gas supplies via the key pipeline from Russia, also seemed to have favored the EUR.

Talking about data, US Durable Goods Orders rose by 1.9% MoM versus expectations of -0.4% and the revised prior of 0.8%. Further, the Nondefense Capital Goods Orders excluding Aircraft also increased by 0.5% compared to 0.2% market consensus and 0.6% prior. Additionally, the US Pending Home Sales dropped by 8.6% MoM in June, compared to the market expectation for a decrease of 2% and following May's growth of 0.4%.

Amid these plays, the S&P 500 Futures drop 0.10% intraday at the latest while the Asia-Pacific markets traded mixed during the initial hours of trading.

To sum up, EUR/USD prices struggle to extend the post-Fed gains as traders await Germany’s key inflation data, namely Harmonized Index of Consumer Prices (HICP) for July, as well as the US Q2 Gross Domestic Product (GDP) Annualized, expected 0.4% versus -1.6% prior. If the data signals more reflation woes and softer US GDP growth, the major currency pair could witness a pullback.

Also read: US GDP Preview: Win-win for the dollar? Economy's flirt with recession to boost the buck

Technical analysis

EUR/USD bulls need successful trading beyond the previous weekly top surrounding 1.0280 to keep reins. However, sellers may not risk the entry until witnessing a clear downside break of the 21-DMA, near 1.1960 at the latest.