EUR/USD appears cautious near 1.0780 ahead of US NFP

EUR/USD trims part of the earlier advance to multi-day highs near 1.0780 as a more cautious tone emerges ahead of the release of the US jobs report.

EUR/USD: Next on the upside comes the 100-day SMA

EUR/USD so far maintains the bid bias amidst a mildly offered tone in the greenback and a persistent appetite for the risk-associated universe at the end of the week.

In addition, the risk-on mood derives extra support after the US Senate passed the debt ceiling bill late on Thursday. The legislation is now on its way to the White House, where President Joe Biden will sign it into law. This action prevents the occurrence of an unprecedented default, as the Treasury Department had cautioned that it would be incapable of meeting all financial obligations on June 5 if Congress did not take action before that date.

Still contributing to the upside bias in spot is the persevering hawkish narrative from ECB President Lagarde and many of her colleagues at the Council, who insisted that inflation remains elevated and that further tightening remains well on the cards for the next couple of months. On this, investors continue to pencil in a quarter-point rate raise at both the June and July meetings, leaving the door open to a similar move in September.

Second-tier releases in the domestic docket saw Industrial Production in France expand more than estimated by 0.8% MoM in April.

Later in the NA session, the release of US Nonfarm Payrolls and the Unemployment Rate will grab all the attention.

What to look for around EUR

EUR/USD reclaims the area well north of the 1.0700 barrier, although the recent sharp rebound is expected to be put to the test in light of the release of crucial US data.

In the meantime, the pair’s price action is expected to closely mirror the behaviour of the US Dollar and will likely be impacted by any differences in approach between the Fed and the ECB with regards to their plans for adjusting interest rates.

Moving forward, hawkish ECB speak continues to favour further rate hikes, although this view appears to be in contrast to some loss of momentum in economic fundamentals in the region.

Key events in the euro area this week: Germany Retail Sales/Final Manufacturing PMI, EMU Final Manufacturing PMI, Flash Inflation Rate, ECB Lagarde, ECB Accounts (Thursday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle in June and July (and September?). Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is gaining 0.09% at 1.0771 and a break above 1.0779 (weekly high June 2) would target 1.0812 (100-day SMA) en route to 1.0886 (55-day SMA). On the downside, initial contention comes at 1.0635 (monthly low May 31) seconded by 1.0516 (low March 15) and finally 1.0481 (2023 low January 6).