EUR/USD stays defensive above 1.0000 despite hawkish ECBspeak ahead of EU inflation
|- EUR/USD struggles to extend two-day rebound ahead of the key data/events.
- Strong German inflation allowed ECB policymakers to back higher rates.
- Hawkish Fedspeak, risk-aversion challenges the upside momentum.
- China data/news may entertain traders ahead of EU inflation numbers.
EUR/USD fades upside momentum, after printing mild gains in the last two days, as the pair traders await Eurozone inflation data on Wednesday. That said, the major currency pair edged higher on Tuesday after upbeat statistics from Germany, as well as hawkish comments from the European Central Bank (ECB) policymakers. That said, the quote seesaws around to 1.0015 by the press time.
Germany’s Consumer Price Index (CPI) rose to 7.9% YoY in August from 7.5% in July, compared to the market expectation of 7.8%. Further, the Harmonised Index of Consumer Prices (HICP) for the nation, the ECB’s preferred gauge of inflation, rose to 8.8% from 8.5% as expected. Following the data, Reuters mentioned that near 50-Year high German inflation strengthens case for a larger ECB rate rise.
That said, policymaker Klaas Knot said on Tuesday that he was leaning toward a 75 basis points rate hike in September and also added that he was open to discussion. On the same line, ECB Chief Economist Philip Lane said on Tuesday, “We need to keep raising interest rates.” Further, ECB Governing Council member Madis Muller told Reuters on Tuesday that he thinks 75 basis points should be among the options for September given that the inflation outlook has not improved. Additionally, ECB member Joachim Nagel also said, “We shouldn’t delay the next interest-rate steps for fear of a potential recession”.
On the other hand, US Consumer Confidence for August improved to 103.2 versus 95.3 in July, per the Conference Board’s (CB) latest survey details. Also, US Housing Price Index (HPI) rose by 0.1% MoM in June compared to May's increase of 1.3% and market expectation of 1.1%. Further, the S&P/Case-Shiller Home Price Indices eased to 18.6% YoY during the stated month versus 19.5% forecast and 20.5% previous readings. It should be noted that the US JOLTS Job Openings grew to 11.239M in July versus 10.475M expected and 11.04M prior (revised from 10.698M).
Talking about the Fedspeak, "I don't expect inflation to come down predictably," said Richmond Federal Reserve Bank President Thomas Barkin. Following him was Atlanta Fed President Raphael Bostic who said, “Slowing inflation data 'may give us reason' to slow interest rate hikes.” Moving on, NY Fed President John Williams spoke to the Wall Street Journal (WSJ) while saying, “We are not at restrictive policy yet.” The policymaker added, “We need to get interest rates higher than longer run a neutral level.”
Elsewhere, Taiwan’s firing of the warning shots for 1st time at a Chinese drone, per Reuters, joined the Wall Street Journal’s news stating that the US Army grounds entire fleet of Boeing-made Chinook helicopters to also weigh on the market sentiment and the EUR/USD prices.
Amid these plays, yields renewed cycle high and Wall Street closed in the red while the US dollar regained upside momentum.
Moving on, the flash/preliminary readings of the Eurozone HICP for August, expected at 9.0% versus 8.9% prior, will be crucial for the EUR/USD pair buyers amid talks of higher rates and recession. Also important to watch will be the headlines surrounding China due to the latest geopolitical fear surrounding the dragon nation, as well as energy concerns relating to the old continent.
Also read: Eurozone Inflation Preview: Hotter HICP to cement a 75 bps ECB hike next week
Additionally, the US ADP Employment Change for August, the early signal for Friday’s US Nonfarm Payrolls (NFP), expected 200K versus 128K prior, will also be important to watch for fresh impulse.
Also read: ADP Jobs Preview: Three reasons to expect the data to drive the dollar higher
Technical analysis
A two-week-old descending resistance line restricts immediate EUR/USD upside ahead of late July’s bottom around 1.0100. On the contrary, pullback remains elusive beyond the recently flashed multi-year low near 0.9900.
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