EUR/USD creeps down from five-week highs, under the 1.0300 figure

• The EUR/USD falters to hold above 1.0300, preparing to finish the week with gains of just 0.21%.
• US Consumer Sentiment rises to a three-month high, while inflation expectations remain mixed.
• Fed’s Daly: Far from declaring victory, supports a 50 bps hike as the baseline for September’s FOMC.
• EU’s Industrial Production surprised to the upside, but recession is still looming.

EUR/USD could not hold to its two-day gains, drops from five-month highs, back below the 1.0300 mark amidst a positive market mood, after a week where US inflation reports indicate that prices are cooling down, so the Fed might take a more “dovish” approach, regarding tightening.

The EUR/USD is trading at 1.0255 after hitting a daily high at 1.0321, but overall US dollar strength sent the shared currency diving below the 1.03000 figure, towards a fresh two-day low at 1.0238.

EUR/USD falls despite positive EU data after US Consumer sentiment improvement

In the meantime, investors’ mood is positive, further underpinned by the University of Michigan’s Consumer Sentiment. The August reading exceeded estimates, at 55.1, higher than the 52.5 forecasted by the street. Meanwhile, consumer inflation expectations for 1-year decreased from 5.2% to 5%, while 5-year rose above 3%, from 2.9%.

Aside from macroeconomic data, further Fedspeaking keeps the hawks in charge. On Thursday, San Francisco’s Fed Mary Daly said that inflation remains high and that she favors a 50 bps rate hike. However, she does not discount a 75 rate hike, but it would depend on data. On Friday, Richmond’s Fed Thomas Barkin said that inflation data is welcome, but he wants to see a sustained period of inflation under control. Barkin added he’s undecided about September’s FOMC monetary policy meeting.

The US Dollar Index is recovering some ground in the day, is up 0.60%, at 105.723, ahead into the weekend.

Across the pond, the Euro area reported Industrial Production, which came better than expected, at 0.7% MoM vs. 0.2%, and May’s reading was upward revised to 2.1%. The annual basis figures rose by 2.4%, vs. 1.0% foreseen. Nevertheless, the ongoing EU energy crisis and fragmentation risks lingering keep the EU economic outlook aiming towards a recession.

Additionally, the Rhine River in Germany fell below its critical level, around 40 cm, aiming to disrupt deliveries of raw materials, mainly coal. Contargo, a german container operator, said that it would discontinue large operations in the mid-upper Rhine River, according to Reuters.

Analysts at BBH reported that ECB tightening expectations suggest a 50 bps hike is 80% priced in for September 8, while the swaps market is pricing 150 bps over the next 12 months, eyeing to see the deposit rate around 1.5%, up from 1.25%.

What to watch

The EU calendar will feature the German Zew for August, EU employment and GDP data, alongside the HICP for July and the EU current account. Across the pond, the US economic docket will feature the NY Fed Manufacturing, Housing data, Industrial Production, and Retail Sales.

EUR/USD Key Technical Levels