EUR/USD continues to face selling pressure around 1.1220 as Wednesday’s European session begins, extending its decline from the highest level seen since February 2022.

The Euro pair’s retreat is not only a result of the US Dollar’s corrective bounce but also influenced by the European Central Bank (ECB) concerns during a volatile market period following an overly optimistic performance.

According to Bloomberg, ECB officials are grappling with determining the central bank’s future moves. Policymakers from different perspectives are finding it challenging to convey a clear message regarding the July rate hike. An anonymous policymaker stated, “The task will be to avoid strong signals of either another hike or a pause.”

Meanwhile, a recent Reuters poll of approximately 109 economists suggests that the widely anticipated 25 basis points (bps) rate hike by the Federal Reserve in July will mark the end of the current tightening cycle.

However, Tuesday’s positive US Retail Sales Control Group data for June reinforces speculation that the Fed might keep interest rates elevated for a longer duration or potentially raise rates further.

As a result, the US Dollar Index (DXY) has edged higher, rebounding from the 15-month low around 99.55 observed the previous day and settling around 100.05.

The EUR/USD bears face additional pressure due to mixed headlines related to China and optimism in the equity markets during a sluggish trading session.

The China Industry Ministry recently expressed concerns about insufficient demand and declining revenues, which aligns with the downbeat Gross Domestic Product (GDP) data for the second quarter (Q2).

The economic slowdown in the world’s largest industrial player raises worries about reduced commodity demand, impacting the price of oil, given China’s status as a major consumer.

Conversely, US banks anticipate higher profits from elevated rates and push back recession concerns, contributing to a firmer market sentiment that challenges the recent strength of the US Dollar bulls.

In light of this backdrop, the S&P500 Futures hover near their highest levels since March 2022, currently trading around 4,585. The sluggish market sentiment is evident in the benchmark US 10-year bond coupons, which remain under pressure at approximately 3.78%, while the two-year counterpart edges lower to 4.75%.

Looking ahead, the EUR/USD is expected to extend its recent pullback, considering the light economic calendar. However, traders will be paying attention to the final Eurozone inflation data for June and the US housing market indicators for the same month, along with various risk catalysts.


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