EUR: Bullish EUR/USD moves toward 0.9800 as ECB’s QT and US Retail Sales approach

Oct 14, 2022
VOT Research Desk

Market Insights and Analysis

Inching closer to the weekly high, the EUR/USD crosses the 10-DMA hurdle.

Softer yields put more downward pressure on DXY.

Early in 2023, ECB policymakers talk about normalizing the balance sheet.

Even after the play caused by the US CPI, stronger US data might not ensure the return of the bear.

As traders await Friday’s crucial US consumer-centric data, EUR/USD anticipates a weekly gain around 0.9800, particularly after the tragic recovery from the fortnight low on Thursday.

Despite stronger US inflation data, the major currency pair posted the largest daily gains in over a week the day before. The market’s anxiety ahead of today’s US Retail Sales for September and preliminary readings of the Michigan Consumer Sentiment Index (CSI) and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for October are exacerbated by the same factor. Nonetheless, buyers of EUR/USD applaud the ongoing discussions regarding the European Central Bank’s (ECB) quantitative tightening (QT) and lower US Treasury yields.

According to sources who spoke with Reuters, policymakers at the European Central Bank planned to begin quantitative tightening in the second quarter of 2023 and discussed a specific timeline earlier this month for reducing a portfolio of bonds worth 3.3 trillion euros. Despite stronger US data, the pair buyers are likely to be favored by the hawkish ECB rhetoric and the wearied US dollar bulls.

The remarks made by Paolo Gentiloni, the Commissioner for Economic Affairs of the European Union (EU), may be in line with this.EU inflation linked to energy costs,” the policymaker said earlier in the day, adding that tightening monetary policy is inevitable.

Despite hawkish Fed predictions, the US Dollar Index (DXY) was drowned on Thursday by a third consecutively weaker US Consumer Price Index (CPI) and the 40-year high Core CPI. In terms of the data, the US CPI increased to 8.2%, which was higher than the 8.1% that market forecasts, but it decreased from the prior 8.3%.The CPI ex Food & Energy, more commonly referred to as the Core CPI, increased to 6.6%, exceeding expectations of 6.5% and previous readings by 6.3%.

It is important to note that while the benchmark US Treasury yields fall from their recent highs, money market wagers are currently pricing in the full 75 bps Fed rate hike.

Moving on, the ECB and risk catalysts like covid updates, Russia-Ukraine news, and stimulus announcements may entice EUR/USD intraday traders ahead of the consumer-centric US data that was mentioned earlier. Due to the fact that markets are in a state of “sell the fact,” it is important to keep in mind that stronger US numbers do not automatically invite EUR/USD bears.

Technical Analytics

The pair buyers need a daily closing above the 21-DMA resistance of 0.9800 to retake control, despite the three-week-old horizontal support placing a floor near 0.9670-65.