EUR/USD bears keep the reins at six-week low as ECB appears less hawkish than Fed

• EUR/USD takes offers to refresh intraday low, prints three-day downtrend near 1.5-month low.
• ECB policymakers, monthly bulletin hesitate over further rate hikes.
• Strong US data, yields allow Fed talks to propel policy pivot rate.
• Geopolitical fears, light calendar ahead of next week’s FOMC Minutes keep bears in the driver’s seat.

EUR/USD renews intraday low around 1.0660 as bears cheer a three-day losing streak at the lowest levels since early January. In doing so, the major currency pair justifies the broad US Dollar gains.

That said, the major currency pair’s latest weakness could be linked to the firmer US data that allows the Federal Reserve (Fed) policymakers to remain hawkish versus the European Central Bank (ECB) updates that suggest a receding urge towards the highest rate.

On Thursday, St. Louis Federal Reserve's James Bullard and Cleveland Fed President Loretta Mester were the latest to bolster the greenback while conveying their hawkish bias, backed by upbeat US data. Among them, the Fed hawk Bullard said, “Continued policy rate increases can help lock in a disinflationary trend during 2023, even with ongoing growth and strong labor markets, by keeping inflation expectations low.” Fed’s Mester, on the same line, stated that the Fed will need to go above 5% and stay there for a while. The policymaker also added that she is not ready to say if the Fed needs a bigger rate increase at the next policy meeting but said that she would not want to surprise the markets.

Talking about the data, the US Producer Price Index (PPI) for January gained major attention as it jumped the most since June with 0.7% MoM figure. Also positive was the improvement in the US Initial Jobless Claims for the week ended on February 10, 194K versus 200K expected and 195K prior. Alternatively, a slump in the Housing Starts for January and the Philadelphia Fed Manufacturing Survey for February seemed to have gained a little attention.

Considering the aforementioned catalysts, the latest FEDWATCH read from Reuters signals that the interest rate futures market shows US rates could peak close to 5.25% by July before dropping to 5.0% by the end of the year. The same signals a higher policy pivot than the 5.10% peak conveyed by the Fed in the December meeting, which in turn hints at a few more rate hikes from the Fed.

On the other hand, ECB’s monthly bulletin said, “The Governing Council's future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach.” The central bank’s document also stated that the survey data point to weakening global economic activity at the turn of the year, following robust growth in the third quarter of 2022. 

Furthermore, ECB executive board member Fabio Panetta mentioned, “ECB should not unconditionally pre-commit to future policy moves.” On the same line, ECB Chief Economist Philip Lane said, “Calibration of the monetary policy stance needs to be regularly reviewed in line with the incoming information about underlying inflation."

On a different page, the fresh US-China tension and Russia’s refrain from stepping back when it comes to attacking Ukraine also weigh on the risk appetite and the EUR/USD prices, due to the US Dollar’s safe-haven demand.

Against this backdrop, Wall Street closed negative and the S&P 500 Futures dropped 0.25% intraday by the press time. Moving on, the US 10-year Treasury bond yields rose to the highest levels in 2023 with the latest print of 3.86% while its two-year counterpart also printed mild gains to end the day around 4.64%, making rounds to the highest levels since November 2022. The same propelled the US Dollar Index (DXY) to refresh a six-week high around 104.23 before retreating to 104.03 by Thursday’s end.

Looking forward, a lack of major data/events keeps EUR/USD grinding towards the south amid the latest hawkish bias for the Fed and strong US data.

Technical analysis

The first daily closing below the 50-day Exponential Moving Average (EMA), around 1.06860 by the press time, since early November 2022 directs EUR/USD toward a 10-week-old ascending support line, close to 1.0620 at the latest.