European woes undermine demand for EUR/USD

Geopolitically; EU ministers cannot reach an agreement on new sanctions against Russia as ECB’s Lagarde and Fed’s Powell get ready to deliver their speeches on Tuesday, meanwhile the EUR/USD pair holds modest gains above 1.0400, corrective advance could extend to 1.0470.

The EUR/USD pair ended Monday achieving modest gains in the 1.0430 price territory, up from early lows at 1.0388. The US dollar appreciated at the beginning of the day, as the market’s sentiment was relatively negative, with most concerns concentrating around global economic growth and escalating tensions between US and Russia. EU Ministers were unable to agree on a Russian oil embargo, with Hungary, the Czech Republic and Slovakia as the major opponents.

The shared currency was also affected by news that the European Commission reviewed its economic growth projections to the downside amid the war in Ukraine, while they now see inflation rising at a faster pace this year and holding above the European Central Bank target through 2023.

As for economic data wise, Germany released the April Wholesale Price Index, which rose 2.1% MoM and 23.8% YoY, much worse than anticipated. The EU published the March Trade Balance, which posted a seasonally adjusted deficit of €17.6 billion. Finally, the US NY Empire State Manufacturing Index plummeted to -11.6 in May, down from 24.6 previously.

On Tuesday, the EU will publish the second estimate of the Q1 Gross Domestic Product, foreseen unchanged at 0.2% QoQ, while the US will release April Retail Sales, expected to have risen a modest 0.3% MoM. Also, ECB President Christine Lagarde and Federal Reserve Chief Jerome Powell will be on the wires.

The EUR/USD pair is modestly up for a second consecutive day. Nevertheless, the bullish potential is well limited, according to technical readings in the daily chart. The pair is developing below bearish moving averages, with the 20 SMA now providing dynamic resistance at around 1.0585. The Momentum indicator recovers within negative levels, while the RSI remains near oversold readings, indicating absent buying interest.

The pair’s corrective advance could continue towards 1.0470, the former yearly low and the immediate resistance level. According to the 4-hour chart, the pair is neutral-to-bearish. The Momentum indicator is advancing around its midline, while the RSI indicator is flat at around 43. A firmly bearish 20 SMA has capped advances, while the longer ones maintain bearish slopes above it, all of which keep the risk skewed to the downside.