EUR/USD licks banks, Italy inflicted wounds near 1.0950 with eyes on US inflation

• EUR/USD portrays corrective bounce off one-week low after posting two-day losing streak.
• Italy’s surprise windfall tax announcements for banks increase hardships for “Old continent”, especially when ECB forecasts softer inflation.
• Unimpressive EU/US data, looming fears of Eurozone recession and banking woes exert downside pressure on Euro.
• China inflation, banking news and economic slowdown talks will direct intraday Euro moves ahead of Thursday’s US CPI.

EUR/USD stays defensive around 1.0960 as bears take a breather after a two-day losing streak amid Wednesday’s sluggish Asian session. The Euro pair dropped the most in a week the previous day after news from Italy joined the broad risk aversion to weigh on the major currency pair. However, the cautious mood ahead of China inflation and recent headlines taming pessimism seem to prod sellers of the major currency pair.

Italy’s announcements of a surprise windfall tax on bank profits joined the downward revision of the Eurozone inflation forecasts by the European Central Bank (ECB) monthly survey report to weigh on the EUR/USD price the previous day.

On Tuesday, the European Central Bank’s (ECB) monthly survey of consumer expectations for inflation stated that Consumer inflation expectations for the next 12 months fall further to 3.4% in June, versus 3.9% projected in May. “Expectations for economic growth over the next 12 months became slightly less negative, while the expected unemployment rate in 12 months was unchanged,” added the ECB survey report.

On the other hand, China’s trade numbers and the fears about the global banks weighed on the sentiment and the EUR/USD price. That said, China's Trade Balance improves in July but the details suggest deteriorating Imports and Exports for the said month, suggesting the economic challenges for the Dragon Nation which already suffers from geopolitical woes. On the same line, India bans drone makers from using Chinese equipment after stopping the imported laptops and computers previously. Also, Chinese real estate giant Country Garden announced missing two dollar bond coupons due on August 6 totaling $22.5 million per Reuters. The news renews fears of bankruptcy among the realtors in China even if the Country Garden has a 30-day grace period to avoid such hardships. Additionally, concerns about rating giant Moody’s downgrading to nine United States banks joined Fitch Ratings’ downgrading of cutting the credit rating and warning about the outlook of a few US financial institutions renewed banking fears.

It’s worth noting that the mixed US data and the Fed talks seem to prod the EUR/USD bears. That said, US Goods and Services Trade Balance for June came in at $-65.5B versus the $-65B expected and $-68.3B prior whereas the NFIB Optimism Index for July improved to 91.9, the highest in nine months, from 91.0 previous readings and 90.6 market forecasts. Further, US IBD/TIPP Economic Optimism for August eases to 40.3 from 43.0 market forecasts and 41.3 prior whereas Wholesale Inventories for June dropped to -0.5% versus the analysts’ estimations of reprinting the -0.3% figures.

Following the data, Philadelphia Federal Reserve Bank President Patrick Harker advocated Fed’s policy pivot while saying, per Reuters, “I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions we have taken do their work.” On the other hand, Richmond Fed President Thomas Barkin stated that the Gross Domestic Product (GDP) remained "solid". 

Moving on, China’s Consumer Price Index (CPI) and Producer Price Index (PPI) for July will be crucial for intraday directions. Forecasts suggest the CPI is likely to tease deflation while posting -0.4% YoY figures versus 0.0% prior whereas the PPI is expected likely to improve to -4.1% YoY from -5.4% prior. Should China’s inflation numbers soften, the market’s fears escalate and the same can propel the US Dollar ahead of the US CPI data, up for publishing on Thursday, allowing the EUR/USD bears to break the key 100-DMA support.

Technical analysis

EUR/USD edges lower between the 100-DMA and previous support line stretched from May 31, respectively near 1.0925 and 1.1050.