• EUR/USD extends pullback from one-week high, pares the biggest daily gains in a month.
• Strong US Treasury bond yields join risk-negative headlines to renew US Dollar demand.
• Upbeat German inflation, hawkish ECB rhetoric puts a floor under the Euro price.
• Flash readings of Eurozone HICP and CPI will precede ECB President Lagarde’s speech to entertain EUR/USD traders.

EUR/USD prints mild losses around intraday low of 1.0635 as it pares the biggest daily gain in a month while reversing from the one-week high during early Thursday. In doing so, the major currency pair justifies the broad US Dollar strength ahead of the key Eurozone inflation numbers and a speech from the European Central Bank (ECB) President Christine Lagarde.

That said, US Dollar Index (DXY) extends the bounce off a one-week low to 104.70 at the latest, up 0.27% intraday, as the hawkish bias of the major central bank officials joins inflation fears to propel the yields.

Also adding strength to the US Dollar could be the upbeat details of the US ISM Manufacturing PMI for February. On the contrary, Germany’s Inflation number, per the Consumer Price Index (CPI), stayed unchanged at 8.7% YoY for February versus 8.5% expected. However, the annual Harmonised Index of Consumer Prices (HICP), the ECB's preferred gauge of inflation, edged higher to 9.3% from 9.2% in January, compared to analysts' estimate of 9%.

On Wednesday, Minneapolis Federal Reserve (Fed) President Neel Kashkari reiterated his previous calls for higher interest rates while citing the fears emanating from the services inflation. On the same line, ECB Governing Council member Madis Muller said, “Rate hikes are having an effect but inflation is still too high.” Further, ECB policymakers Joachim Nagel and Francois Villeroy de Galhau also highlighted the inflation fears to suggest the need for higher rates.

It should be noted that the fading optimism over China’s economic growth recently joined the fears of the Sino-American tussles and exerted additional downside pressure on the EUR/USD prices.

Against this backdrop, the US 10-year Treasury bond yields rose to the highest levels since early November 2022 by piercing the 4.0% mark, around 4.02% at the latest, whereas the two-year counterpart rallied to the highest levels since June 2007 by flashing the 4.92% mark by the press time.  The jump in the US Treasury bond yields portrays the market’s fears, which in turn probed bulls on Wall Street and weigh on S&P 500 Futures as of late.

Looking ahead, the first readings of February’s Eurozone Consumer Price Index (CPI) and the ECB’s preferred inflation gauge, namely HICP, will be crucial for the EUR/USD traders to watch for clear directions. Additionally, ECB President Lagarde’s speech also appears crucial for the near-term guide.

Also read: Eurozone Inflation Preview: Eyes on monthly HICP amid heightened hawkish ECB bets

Technical analysis

Failure to provide a daily closing beyond the 50-day Exponential Moving Average (EMA), currently around 1.0660, triggers EUR/USD pullback towards the 200-day EMA retest, close to 1.0535 at the latest.