The EUR/USD pair is retreating for the second day in a row on Wednesday as the greenback continues to gather pace across the board after the long weekend in the United States.
The US dollar has strengthened over the last sessions, supported by higher US yields along the curve, pushing the EUR/USD from a one-month high of 1.0787 struck on Monday to a low of 1.0651 so far on Wednesday.
The euro had been recovering ground from a five-year low of 1.0340 hit mid-May amid growing speculation that the European Central Bank would start hiking rates in July to fight ramping and widening inflation. The EU Harmonized Consumer Price Index grew by 8.1% last month, surpassing expectations of 7.7%, data showed on Tuesday. Consensus point to a 25 bps hike to start with, but many ECB members continue to advocate for a more aggressive move.
Meanwhile, data from the US showed manufacturing PMI rose to 56.1 in May, exceeding expectations of 54.5. Investors’ focus now turns to the Nonfarm payrolls report that will be published on Friday.
From a technical standpoint, the EUR/USD holds a slight bullish bias according to the daily charts as indicators remain on positive ground, although losing momentum. The RSI has turned lower, while the MACD signals decreasing buying interest.
At the same time, the EUR/USD pair prints its second red candle after failing to break above a descending trendline coming from February highs.
Loss of the 1.0640 support area would lead to a steeper decline towards 1.0600, where the 20-day SMA reinforces the psychological level. A break below this latter would worsen the short-term perspective, targeting the May 20 low at 1.0532.
On the other hand, if the pair manages to recover the 1.0700 level, it could gather renewed momentum to charge against the mentioned trendline, currently around 1.0790. From there, a break of 1.0800 could improve the outlook for the EUR/USD.