EUR/USD steadies near 0.9700 as German Inflation matches initial forecasts, US CPI eyed

• EUR/USD pares recent losses as Germany confirms 10.9% HICP for September.
• Firmer yields jostle with hawkish comments from Fed, ECB policymakers to challenge traders.
• FOMC Minutes showed policymakers’ support for further rate hikes, ECB discusses QT.
• US CPI can lure pair sellers even if the headline figures soften a bit.

EUR/USD remains sidelined around 0.9700, recently picking up bids, even as Germany’s inflation numbers match upbeat forecasts during early Thursday. In doing so, the major currency pair portrays the pre-data trading lull as traders await the US Consumer Price Index (CPI) figures for September.

Germany’s latest headline inflation numbers, namely the CPI and the Harmonized Index of Consumer Prices (HICP), confirmed the initial forecasts of 10.0% and 10.9% respectively for September. With this, the fears of taming inflation in the bloc, while also taming the recession woes, take place among the European Central Bank (ECB) policymakers who recently sounded hawkish.

That said, European Central Bank (ECB) policymaker Klaas Knot said on Wednesday that they need a few more significant rate hikes before reaching neutral territory and noted that the terminal rate in the eurozone is lower than in the US, per Reuters. Following that, ECB President Christine Lagarde said on Wednesday that the Governing Council has started discussions on quantitative tightening (QT), as reported by Reuters. ECB Lagarde, however, also mentioned that the interest rate is the most appropriate tool in current circumstances.

It should be noted that a leak in Russia’s Druzhba gas pipeline to Germany and Russian President Vladimir Putin’s blames on the Eurozone for the gas shortage challenge the EUR/USD buyers even if the ECB policymakers are too hawkish.

Elsewhere, the US 10-year, 2-year and 30-year Treasury yields all snap a two-day downtrend and restrict the US Dollar Index (DXY) moves ahead of the key US CPI data. Also favorable to the greenback is its haven demand, especially amid fresh covid woes from China and Europe, not to forget fears of looming UK markets’ collapse. Also favoring the DXY strength is the latest Fedspeak which is in agreement with the FOMC  Meeting Minutes which mentioned that the policymakers are concerned about inflation and fear doing too little.

To sum up, EUR/USD portrays the market’s indecision ahead of the US inflation data. Forecasts suggest that the headline US CPI is expected to ease to 8.1% YoY versus 8.3% prior. However, the more important CPI ex Food & Energy is likely to increase to 6.5% YoY from 6.3% prior and can favor more downside of the pair. However, an absence of hawkish comments from the ECB should be there to ease the pair’s bearish run.

Technical analysis

Lower highs of the EUR/USD pair’s prices in the last three days join the sustained failures to cross the 5-DMA hurdle, around 0.9715, to favor the odds of breaking the three-week-old support near 0.9675.