EUR/USD bulls poke 1.0600 as mixed US data test Fed hawks, US NFP, ECB’s Lagarde eyed

EUR/USD picks up bids to extend the mid-week recovery from a two-month low, up 0.16% intraday near 1.0600 during early Friday. In doing so, the Euro pair cheers the broad weakness in the US Dollar ahead of the key US employment report for February, as well as a speech from European Central Bank (ECB) President Christine Lagarde.

The major currency pair snapped a two-day losing streak the previous day as mixed US data joined a retreat in the US Treasury bond yields. Adding strength to the run-up were the hawkish ECB talks and the market’s positioning for today’s key US data. However, inflation fears join the geopolitical tension to challenge the EUR/USD buyers.

That said, US Initial Jobless Claims marked the biggest jump since January by rising to 211K for the week ended on March 03 versus 195K expected and 190K prior. Additionally, the Challenger Job Cuts were down and the Continuing Jobless Claims were up. With this, the early signals for Friday’s Nonfarm Payrolls (NFP) appear mixed and challenge the market’s push for 0.50% Fed rate hike in March, as backed by Federal Reserve Chairman Jerome Powell’s latest signals.

Despite the mixed data, fears of inflation keep favoring the Fed hawks, especially after Chairman Jerome Powell defends the tighter monetary policy, which in turn caps the Euro prices. It should be noted that the latest report from the New York Fed mentioned that recent upward revisions to inflation data coupled with higher-than-expected levels of inflation had changed the picture on what had appeared to be cooling in price pressures.

On the other hand, ECB policymaker Francois Villeroy de Galhau said on Thursday that they will bring inflation back to 2% by end-2024 or end-2025.

Apart from the aforementioned catalysts, the geopolitical fears emanating from US President Joe Biden’s budget proposal for 2024 and the US partnership with the UK and Australia for nuclear submarines should also challenge the EUR/USD buyers.

Against this backdrop, the US 10-year and two-year Treasury bond yields extend the previous day’s losses to 3.88% by the press time and weigh on the US Dollar Index (DXY), down 0.10% to 105.12 at the latest. That said, Wall Street benchmarks closed with more than 1.5% daily losses each, which in turn directed S&P 500 Futures to print mild losses by the press time.

Looking ahead, market forecasts suggest an overall easing in the US employment report for February. The same contrasts with the hawkish Fed bias to highlight the odds of a strong market move in favor of the US Dollar in case of a positive surprise. However, the same requires validation from ECB’s Lagarde.

Also read: Nonfarm Payrolls Preview: Five scenarios for the Fed, USD and stocks reactions, with probabilities

Technical analysis

The 100-DMA joins the steady RSI (14) to challenge EUR/USD bears around 1.0530. The pair’s recovery, however, remains elusive below the one-month-old resistance line, around 1.0665 by the press time.