EUR/USD grinds near five-month high past 1.0500, ECB’s Lagarde, US NFP in focus

EUR/USD cheered the broad-based US Dollar weakness to march towards the highest levels since late June, before recently taking rounds to 1.0520-30 during the generally quiet early Asian session. It’s worth noting that the cautious mood ahead of the speech from European Central Bank (ECB) President Christine Lagarde and monthly employment data from the United States seems to probe the pair buyers of late.

Even so, dovish bias about the Federal Reserve’s (Fed) next move joins optimism surrounding China’s Covid conditions and record Unemployment Rate from Eurozone seemed to have drowned the EUR/USD prices.

Having witnessed comments favoring easy rate hikes from the Fed and safe passage for the soft landing, the second-tier Fed officials also confirmed the need to go slow on the rates during their latest speeches.

Recently, Federal Reserve (Fed) Governor Michelle Bowman stated that (It is) appropriate for us to slow the pace of increases. Before him, Fed Governor Jerome Powell also teased the slowing of a rate hike while US Treasury Secretary Yellen also advocated for a soft landing. Further, Vice Chair of supervision, Michael Barr, also said, “We may shift to a slower pace of rate increases at the next meeting.”  

It’s worth noting that the recent comments from New York Fed’s John Williams seemed to have tested the US Dollar bears as the policymakers stated that the Fed has a ways to go with rate rises.

Elsewhere, the consecutive three days of the downtrend of Chinese daily Covid infections from a record high allowed the policymakers to tease the “next stage” in battling the virus while announcing multiple easing of the activity-control measures.

Talking about the data, US Core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation gauge, matched 5.0% market forecasts on YoY but eased to 0.2% MoM versus 0.3% expected. Further, US ISM Manufacturing PMI for November eased to 49.0 versus 49.7 expected and 50.2 prior.

At home, Eurozone Unemployment Rate refreshed a record low of 6.5% in October versus 6.6% expected and prior while the final prints of November’s S&P Global/CIPS Manufacturing PMI dropped to 47.1 versus 47.3 initial forecast. Further, Germany’s Retail Sales growth shrank by 5.0% YoY in October, the biggest drop since June, versus -2.8% expected and -0.9% previous readings. Also, the final prints of German S&P Global/CIPS Manufacturing PMI for November declined to 46.2 compared to 46.7 flash estimations.

Against this backdrop, Wall Street closed mixed but the US 10-year Treasury bond yields plummeted to a four-month low, which in turn drowned the US Dollar Index, pressured around 104.70 by the press time.

Looking forward, likely hawkish comments from ECB President Lagarde during a panel discussion on growth and inflation at the Bank of Thailand might help the EUR/USD to remain firmer. However, the anxiety ahead of the US Nonfarm Payrolls (NFP), expected to ease to 200K versus 261K prior, might restrict the pair’s immediate moves.

Also: Nonfarm Payrolls Preview: Dollar selling opportunity? Low expectations to trigger temporary bounce

Technical analysis

A clear upside break of the four-month-old ascending resistance line, now support near 1.0500, keeps EUR/USD bulls hopeful of poking the late June swing high near 1.0615.