EUR/USD grinds higher past 1.1000 with eyes on US inflation, banking report

EUR/USD begins the trading week without surprises around 1.1025, following a volatile week that ended near the start.

The Euro pair cheered the European Central Bank’s (ECB) comparatively more hawkish rate hike than the Federal Reserve (Fed), as well as the fears emanating from the US banking crisis and the debt default woes. However, the region’s economics weren’t so impressive and the US employment report for April marked strong prints, which in turn prod the EUR/USD bulls.

On Friday, the US employment report for April surprised markets by unveiling a jump in the headline Nonfarm Payrolls (NFP) by 253K expected and revised down prior readings of 165K. Further, the Unemployment Rate also eased to 3.4% versus 3.5% market forecasts and previous mark whereas Average Hourly Earnings improved to 4.4% YoY from 4.3% prior (revised) and analysts’ estimations of 4.2%.

Following the upbeat US employment report, St. Louis Federal Reserve President James Bullard, who supported the 25 basis point rate hike that the Fed took last week, called it "a good next step." The policymaker cited significant amount of inflation in the economy and "very tight" labor market to back his hawkish bias.

On the other hand, “European Central Bank (ECB) interest rate hikes are starting to have an effect, but more will be needed to contain inflation,” said Dutch Central Bank President Klaas Knot on Sunday per Reuters. On Friday, ECB Governing Council member and Bank of France head Francois Villeroy de Galhau said that there will likely be several more hikes.

During the last week, the ECB matched market forecasts by announcing a 25 basis points (bps) increase in its benchmark rates and also unveiled faster dialing back of its Asset Purchase Programme (APP) to around EUR25 billion per month from July, from the current pace of EUR15 billion per month. The regional central bank chose to remain hawkish and shut the door for a rate hike pause while saying, “Inflation outlook continues to be too high for too long." Following the Interest Rate Decision, ECB President Christine Lagarde said, "We are not Fed-dependent in rate decisions, we can tighten if the Fed pauses."

On a different page, Reuters reported that US Treasury Secretary Janet Yellen on Sunday issued a stark warning that a failure by Congress to act on the debt ceiling could trigger a "constitutional crisis" that also would call into question the federal government's creditworthiness.

Amid these plays, Wall Street ended the week on the positive side while the US Treasury bond yields bounced back. Even so, the US Dollar Index remained pressured.

Moving on, US Consumer Price Index (CPI) for April will be crucial to watch for the EUR/USD traders for clear directions, especially after Friday’s upbeat US NFP. Also, US Senior Loan Officer Opinion Survey on Bank Lending Practices and the debt negotiations will be eyed too. It should be noted that there are no major data/events from Europe this week.

Technical analysis

A three-week-old bullish trend channel, currently between 1.1115 and 1.0955, appears crucial for EUR/USD traders to watch. That said, bulls appear running out of steam of late.