- EUR/USD trims part of its Monday losses and clings above parity but just above the July 10 low.
- Recession fears persist as the US 2-year and 10-year yield curve remains inverted.
- The Fed’s Barkin is hesitant to raise 50 or 75 basis points at the July policy meeting.
- The EU and German ZEW missed expectations, causing EUR/USD to drop close to parity.
The EUR/USD rebounds from new 20-year lows around the parity zone, paring some of Monday’s losses, as market sentiment falters, reflected by US stocks fluctuating between gains and losses, ahead of the release of the consumer price index (CPI) for June in the US on Wednesday.
At time of writing, the EUR/USD pair is trading at 1.0052, having stumbled towards 1.0000 during the European session on worse-than-expected German data. The pair then jumped towards daily highs around 1.0073, 10 pips from the 50 hourly EMA around 1.0082, which capped the EUR/USD’s rally.
EUR/USD rises despite fragile investor sentiment
The market mood is mixed, as reflected by the fluctuations in US equities as recession fears persist. The US 2s-10s yield curve remains inverted for the second time this week, reaching -0.107%, a level last seen in 2007. For its part, the dollar index, an indicator of the value of the USD takes a breather, down 0.20% to 107.986, which is a tailwind for EUR/USD, which fell close to parity on weaker-than-expected EU news.
Meanwhile, Fed spokesmen did almost nothing during the New York session to boost the greenback. Richmond Fed President Thomas Barkin said he was reserving judgment on a 50 or 75 basis point rate hike at the July meeting and reiterated that he would like real rates to be positive across the curve. Furthermore, he added that a negative GDP in the second quarter would take him “seriously”, while adding that he expects another high inflation report.
The White House (WH) expects the US CPI to remain elevated, but downplayed recession concerns in a memo published by Reuters. The White House added that “the impact of food and energy prices on June’s annual headline CPI will likely exceed 40%, based on market expectations.”
During the European session, the EU and German ZEW surveys of economic sentiment missed expectations, triggered by the bloc’s energy crisis, supply chain disruptions and the ECB’s intentions to raise interest rates. According to ZEW President Achim Wambach, “experts assess the current economic situation significantly more negatively than in the previous month and have further lowered their already unfavorable forecast for the next six months.”
Must to see
Eurozone industrial production and Germany’s inflation rate will be published on the Eurozone economic calendar. Across the pond, the US economic calendar will release June’s inflation rate, expected to be 8.8% yoy, while core CPI is estimated at 5.8% yoy. Later, EUR/USD traders will get some clues from the Fed’s Beige Book, which the Fed uses in its monetary policy meetings.
Technical levels
Source: Fx Street
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