EUR/USD ignores heavy yields around 1.1300, US inflation, Omicron in focus

  • EUR/USD retreats after Friday’s mild gains failed to overcome bearish bias.
  • Fed versus ECB saga weigh as FOMC members enter silent period, yields refreshed 10-week low.
  • Fed’s Bullard sounds hawkish, US Unemployment Rate covered NFP-linked woes.
  • German Factory Orders can offer immediate direction but US CPI is the key.

EUR/USD fades Friday’s bounce off 1.1266, easing back to 1.1300 amid the initial Asian session on Monday.

The major currency pair snapped a two-day downtrend to post mild gains the previous day amid softer-than-expected US Nonfarm Payrolls (NFP). However, hawkish Fedspeak and a slump in the Unemployment Rate keep Fed versus ECB story on the deck and keep the pair sellers hopeful.

Although US NFP disappointed labor market optimists with 210K figures, versus 550K expected, the Unemployment Rate propelled Fed funds futures with a 0.4% drop to 4.2%. Further, Average Hourly Earnings matched the 4.8% YoY forecast.

Before the data, St Louis Fed President James Bullard who is also a voting member in 2022 said, “Could look at raising interest rates before completing the taper.”

On the contrary, the European Central Bank (ECB) policymakers believe that the inflation fears are temporary and highlight the pandemic to defend the easy money policies.

Not only the ECB but the BOE, the RBA and the BOJ are all in favor to keep the easy money flowing while market players brace for the hints of the faster Fed tapering and/or a rate hike in the next week’s US Federal Reserve (Fed) monetary policy meeting.

As a result, this week’s US Consumer Price Index (CPI) for November becomes the key. “The consensus expectation for this week’s US CPI is +0.7% m/m, which would leave the annual rate at 6.8% y/y. Even if bottlenecks ease, it looks highly likely that US inflation will stay above 4.0% y/y for much of next year, and that will add to underlying wage pressures amid a tightening labor market,” said ANZ.

It’s worth noting that the virus woes and the recent high talks of the US-China tussles are additional support for the EUR/USD prices as safe-haven demand underpins the US dollar.

That said, Wall Street benchmarks closed negative while the US 10-year Treasury yields dropped around 10 basis points (bps) to 1.35%, the lowest since late September.

Moving on, a corrective pullback could be expected amid an absence of major data/events and indecision ahead of the next week’s Fed. However, today’s German Factory Orders for October, expected -0.5% MoM versus +1.3% prior can offer intraday direction to the quote.

Technical analysis

A five-week-old descending trend line restricts short-term recovery of the EUR/USD prices whereas 1.1230 holds the key to fresh selling.