• EUR/USD picks up bids to refresh intraday high, extends previous day’s recovery.
• Mixed Eurozone inflation, doubts over Fed and ECB’s role in banking fallouts challenge Euro pair buyers.
• US default fears, anxiety ahead of FOMC also act as additional checks for buyers.
• US ADP Employment Change, ISM Services PMI can entertain EUR/USD traders; bulls eye clues for Fed’s policy pivot.

EUR/USD cheers broad US Dollar weakness as it prepares for the key Federal Open Market Committee (FOMC) monetary policy meeting announcements early Wednesday, picking up bids to refresh intraday high near 1.1025 by the press time.

The Euro pair extends the previous recovery from a short-term support line despite mixed Eurozone inflation data and European Central Bank (ECB) updates. The reason could be linked to unimpressive US statistics and doubts that the Federal Reserve’s (Fed) rate hikes are responsible for the latest banking turmoil.

In its latest Bank Lending Survey (BLS), the European Central Bank (ECB) noted that a net 38% of Eurozone banks reported a fall in demand for credit from companies in the first quarter of the year, which in turn suggests a negative impact of the rate hikes on the bloc’s credit conditions.

On the same line, a top White House (WH) Economist Heather Boushey, a member of the White House Council of Economic Advisers, told Reuters that the Fed is raising interest rates in the hope of reducing inflation. That is having this negative effect on the banking sector. “Why would we add to that?,” said WH Economist Heather Boushey.

Talking about the data, the first readings of Eurozone inflation, per the Harmonized Index of Consumer Prices (HICP), rose to 7.0% YoY in April versus 6.9% market forecasts and previous readings. However, the ECB’s preferred inflation gauge, namely the Core HICP, eased to 5.6% during the stated period versus 5.7% analysts’ estimations and previous readings.

Meanwhile, US Factory Orders for March improved to 0.9% versus 0.8% expected and -1.1% (revised) previous readings. However, the US JOLTS Job Openings for the said month eased to 9.59M from 9.974M prior and 9.775M market forecasts.

Elsewhere, fresh selling of PacWest Bancorp and Western Alliance Bancorp shares triggered banking fears across the board and put a floor under the US Dollar price, especially amid hawkish Fed bets. Additionally weighing on the market sentiment and challenging the EUR/USD bulls could be the US policymakers’ struggle to avoid debt ceiling expiration, looming in June versus previous expectations of July expiry.

“Top US Senate Republicans on Tuesday called on President Joe Biden to accept their party's debt-ceiling package or make a counter-offer, while a top Democrat said the Senate might try to advance a "clean" debt-ceiling hike next week,” said Reuters.

Amid these plays, Wall Street closed in the red and the US Treasury bond yields also dropped heavily but the holidays in China and Japan restrict the market move afterward. With this, the S&P 500 Futures pare recent losses around 4,142, mildly bid of late.

Looking forward, EUR/USD pair traders should pay attention to the risk catalysts and the US ADP Employment Change for April, as well as the ISM Services PMI for the said month, for clear directions. Above all, the Fed’s monetary policy announcements should be watched carefully as the US central bank’s 0.25% rate hike is already given and the talks of policy pivot are on the table, which in turn can propel the Euro prices in case proven right.

Also read: FOMC Meeting Preview: Powell to keep every door open, surprises not out of the table after RBA

Technical analysis

A clear bounce off the 21-DMA support, around 1.0970 by the press time, followed by an upside break of the one-week-old previous resistance line, now nearby support around 1.0990, keeps the EUR/USD pair buyers hopeful. Though, the Euro pair buyers need validation from a one-month-old previous support line, close to 1.1025 at the latest, to keep the reins.