EUR/USD steadies below 1.0600 despite USD retreat ahead of German ZEW, US inflation

• EUR/USD remains indecisive after testing the bears of late.
• Mixed concerns, pullback in US Treasury yields and the DXY keep traders on their toes.
• Germany’s ZEW Sentiment data for May, central bankers’ comments can offer immediate directions.
• Wednesday’s key US inflation, speech from ECB’s Lagarde could infuse volatility.

EUR/USD stays defensive around mid-1.0500s as global markets consolidate recent moves during Tuesday’s Asian session, following a stellar show of risk-aversion the previous day. The major currency pair’s latest indecision could be linked to anxiety ahead of the key data/events, as well as the recently mixed macro headlines and comments from central bank policymakers.

Growing concerns over the surging inflation’s negative impact on economic growth and the central bankers' struggle to maintain the inflation and growth system triggered the risk-off mood on Monday. Not only the grim growth outlook but downbeat prints of Eurozone Investor Confidence, -22.6 for May versus -20.8 expected and -18 prior, also weighed on the EUR/USD prices the previous day.

However, mixed comments from the Fedspeak and downbeat prints of the US inflation expectations seem to have probed the bears afterward. Despite witnessing extra pressure to support 75 basis points (bps) of a rate hike, Atlanta Fed’s Raphael Bostic promoted a series of 50bps rate lifts. On the other hand, Richmond Fed President Thomas Barkin kept the 75 bps rate hike on the table. That said, the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, dropped the most in 10 months to retest early March levels by the end of Monday’s North American trading session.

Also likely to have eased the pessimism are comments from China’s Vice Premier Liu He who reiterates the country’s dynamic covid zero policy.

Amid these plays, the US 10-year Treasury yields drop six basis points (bps) to flirt with the 3.0% level, extending the previous day’s pullback from a three-year high, whereas the S&P 500 Futures drop 0.20% while poking the yearly low around 3,965 by the press time.

Looking forward, Germany’s ZEW Survey data for Economic Sentiment and Current Situations for May will be eyed for immediate directions. Following that, comments from ECB Vice-president Luis De Guindos and some Fed speakers will be in focus. However, major attention will be given to risk catalysts and the US Consumer Price Index (CPI) data for April.

Technical analysis

A bear flag troubles EUR/USD traders between 1.0490 and 1.0650 as steady RSI and sustained trading below the key resistances, namely 100-SMA and a downward sloping trend line from March 31, keep sellers hopeful.

Also read: EUR/USD Price Analysis: Bear flag remains in play around 1.0550