EUR/USD Analysis: Bulls seem to be losing control, remain at the mercy of USD price dynamics

• The USD made a solid comeback on Tuesday and prompted fresh selling around EUR/USD.
• Bulls seemed rather unaffected by hotter-than-expected Eurozone consumer inflation data.
• Investors now eye ECB Lagarde's speech for some trading impetus ahead of the US ISM PMI.

The EUR/USD pair witnessed heavy selling on Tuesday and snapped a three-day winning streak to over a one-month high, around the 1.0785 region touched the previous day. The US dollar made a solid comeback amid a sharp spike in the US Treasury bond yields, bolstered by hawkish comments from Fed Governor Christopher Waller. This, in turn, was seen as a key factor that exerted downward pressure on the major. Speaking at an event in Frankfurt on Monday, Waller backed the case for a 50 bps rate hike for several meetings until inflation eases back toward the central bank’s goal. Apart from this, a generally weaker tone around the equity markets further benefitted the safe-haven greenback.

The market sentiment remains fragile amid doubts that central banks can hike interest rates to curb inflation without impacting economic growth. This, along with concerns that the global supply chain disruption would push consumer prices even higher, tempered investors' appetite for riskier assets. The fears were further fueled by hot Eurozone inflation figures, which showed that the annualized Harmonised Index of Consumer Prices (HICP) hit another record high level of 8.1% in May. The data reaffirmed market bets for more aggressive rate hikes by the European Central Bank, though failed to impress bullish traders or ease the intraday bearish pressure surrounding the EUR/USD pair.

Spot prices, however, managed to find some support near the 1.0680-1.0675 region and bounced over 50 pips from the daily low. The overnight late recovery lacked any follow-through buying amid sustained USD buying, which seemed unaffected by a goodish recovery in the US equity futures. Market participants now look forward to ECB President Christine Lagarde's scheduled speech for some impetus. Later during the early North American session, traders will take cues from the US economic data – ISM Manufacturing PMI and JOLTS Job Openings. Apart from this, the US bond yields and the broader market risk sentiment will influence the USD and produce some trading opportunities around the EUR/USD pair.

Technical Outlook

From a technical perspective, the overnight downfall found a decent support near the 38.2% Fibonacci retracement level of the 1.1185-1.0350 slide. That said, the emergence of fresh selling on Wednesday favours bearish traders. It, however, will be prudent to wait for some follow-through selling below the aforementioned support, around the 1.0680-1.0675 region, before positioning for any further decline. The EUR/USD pair might then accelerate the fall towards the 1.0625 intermediate support en-route the 1.0600 round-figure mark. The downward trajectory could further get extended towards the 23.6% Fibo. level, around mid-1.0500s.

On the flip side, the 1.0775-1.0785 region, coinciding with the 50% Fibo. level, might continue to act as strong resistance. Sustained strength beyond would be seen as a fresh trigger for bullish traders, which, in turn, should allow the EUR/USD pair to surpass the 1.0800 mark and test the next relevant hurdle near the mid-1.0800s. Bulls might eventually lift spot prices to the 61.8% Fibo. level, around the 1.0880 zone, which if cleared decisively will set the stage for an extension of the recent recovery move from the YTD low.