EUR/USD retreats from 1.0750 as recession woes battle with inflation concerns amid mixed ECB, Fed talks

• EUR/USD eyes the second consecutive weekly loss while stretching the previous day’s losses from one-week high.
• Market sentiment dwindles as US Treasury yields renew recession fears but Fed policymakers appear cautious.
• Softer German inflation, a lack of hawkish ECB talks weigh on Euro.
• Early signals for next week’s US inflation eyed for clear directions.

EUR/USD holds lower grounds near 1.0730-25 as it braces for the second consecutive weekly loss ahead of the key US data during early Friday. The major currency pair refreshed the weekly high the previous day before reversing from 1.0790 on recession fears. That said, the quote renews intraday low by the press time.

The widest negative difference between the US 10-year and 2-year Treasury bond yields since 1980 amplified the recession woes the previous day. The yield curve inversion remains around the same level as both these key bond yields stay inactive near 3.67% and 4.49% respectively by the press time.

While the recession woes renewed the US Dollar demand, softer German inflation data also probed the EUR/USD buyers. On Thursday, preliminary readings of Germany’s key inflation gauge, namely the Harmonized Index of Consumer Prices (HICP) eased to 9.2% YoY for January versus 10.0% expected and 9.6% prior. Additionally, an absence of hawkish rhetoric from the European Central Bank (ECB) policymakers, despite rejecting rate cut bias, also seems to weigh on the pair prices.

It’s worth noting that the downbeat prints of the US Weekly Initial Jobless Claims, which rose to 196K versus 190K expected and 183K prior, joined comments from Richmond Federal Reserve (Fed) President Thomas Barkin to initially weigh on the US Dollar. Fed’s Barkin appeared too dovish while suggesting rate cuts as he said that it would make sense for the Fed to steer "more deliberately" from here due to lagged effects of policy. Previously, Fed Chair Jerome Powell hesitated in cheering the upbeat US jobs report and raised fears of no more hawkish moves from the US central bank.  On the same line could be China-linked optimism as US President Biden’s taming of fears emanating from the China balloon shooting joined the hopes of People’s Bank of China’s (PBOC) rate cuts and the restart of the China-based companies’ listing on the US exchanges.

While portraying the mood, S&P 500 Futures struggle for clear directions even as Wall Street closed with losses whereas stocks in the Asia-Pacific region grind lower of late.

Looking ahead, a light calendar in the bloc needs the EUR/USD traders to observe the risk catalysts for intermediate directions ahead of the early signals for the next week’s US inflation data, namely preliminary readings of the US Michigan Consumer Sentiment Index and 5-year Consumer Inflation Expectations for February. Considering the upbeat expectations from the scheduled data, as well as the recession woes, the major currency pair is likely to witness further downside.

Technical analysis

EUR/USD reversed from the one-week high the previous day as the 200-Simple Moving Average (SMA) challenged buyers. Not only the failures to cross the 200-SMA, around 1.0770 by the press time, but the bearish candlestick at the latest swing high, namely the “Gravestone Doji”, also teases the pair sellers.

That said, an upward-sloping support line from Tuesday probes EUR/USD bears near 1.0730 ahead of the one-month-old ascending trend line support, close to 1.0690 at the latest.