EUR/USD struggles to extend rebound beyond 0.9700, German inflation and US GDP in sight

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  • EUR/USD is stabilizing after rebounding from the 20-year low, paring the largest daily gains since early March.
  • The BOE’s act of stimulus via bond buying joined the hawkish ECBSpeak in triggering a corrective bounce.
  • German inflation will be watched closely to confirm the 0.75% rate hike and favor buyers.
  • Firmer prints of final Q2 US GDP could offer a rebound in the US Dollar as Fed policymakers remain optimistic.

EUR/USD bulls take a breather after posting the biggest daily jump in six months during Wednesday’s rally. That said, the quote was treading water around 0.9730-40 early Thursday morning in Asia.

The major currency pair started on the back foot on Wednesday and refreshed the 20-year low amid general US dollar strength on the market rush for risk safety. However, the Bank of England‘s (BOE) bond-buying plan to restore market confidence joined hawkish comments from European Central Bank (ECB) policymakers to please EUR bulls /USD thereafter.

That said, the Bank of England (BOE) on Wednesday announced a bond buying program to defend the British pound (GBP). The details suggest the BOE will buy bonds with a maturity of over 20 years and up to £5bn by auction initially.

On the other hand, ECB President Christine Lagarde reiterated on Wednesday that she will continue to raise rates in upcoming meetings, as reported by Reuters. Several other members of the ECB Governing Council, namely Olli Rehn, Peter Kazimir and Robert Holzmann, have openly spoken in favor of a 0.75% rate hike at the next meeting.

Elsewhere, the United States’ international trade deficit narrowed by $2.9 billion to $87.3 billion in August, from $90.2 billion in July. The details suggest exports fell for the first time since January while imports marked the fifth straight monthly decline. Additionally, Atlanta Fed President Raphael Bostic said Wednesday that the baseline scenario currently includes a 75 basis point (bps) rate hike in November and a 50 bps hike in December, as the reported Reuters.

It should be noted that the President of the European Commission, Ursula von der Leyen, announced on Wednesday that she would propose new import bans on Russian products that will deprive Russia of 7 billion euros in additional revenue, such as the reported Reuters.

Amid these plays, bond yields tumbled and allowed stocks to consolidate recent losses, which in turn dragged the US dollar index (DXY) to its multi-year high.

However, hawkish tussles between the Fed and the West against Russia, along with likely inflation fears in the bloc, could keep EUR/USD traders on their toes. As a result, today’s German inflation gauge and final second quarter US gross domestic product (GDP) readings will be crucial for immediate guidance. That said, stronger numbers should favor the US dollar more than the euro.

Technical analysis

Although an upside break of the 1-week resistance line, support now near 0.9620, favors EUR/USD buyers, a convergence of the previous 1-month support and the 50-SMA on the chart 4-hour clock near 0.9800 defies bullish momentum.

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