EUR/USD: Sluggish yields test bears on the way to 1.1800, US NFP eyed

• EUR/USD stays heavy near three-month low during the five-day downtrend.
• Covid woes battle Fed tapering chatters, upbeat US data.
• Risk appetite dwindles, US T-bond yields fade bounce off weekly low.
• US jobs report for June can clear previous doubts over Fed’s action, ECB’s Lagarde also occupies watcher’s list.

EUR/USD defends the multi-day low of 1.1837, flashed the previous day, heading into Friday’s European session. Even so, the currency major stays heavy around 1.1845, down 0.06% intraday, by the press time.

The market’s anxiety ahead of the US Nonfarm Payrolls (NFP) for June joins mixed concerns over the Fed’s next moves to probe the pair sellers. However, upbeat US data and hawkish Fedspeak, recently backed by the International Monetary Fund (IMF), keep EUR/USD sellers hopeful.

Also adding to the market’s cautious mood are the mixed signals from Thursday’s US ISM Manufacturing PMI and Jobless Claims. US ISM Manufacturing PMI came in a touch softer than 61.00 expected and 61.2 previous readouts to 60.6 in June. This also joins the details relating to the employment component that dropped to 49.9 but the prices-paid sub-component jumped to the highest since 1979. On the contrary, Initial claims for last week fell to 364K, dragging down the four-week average to 392.75K, which in turn backs a strong NFP print that is expected to rise from 559K to 690K in June.

Read: NFP Preview: Four reasons why June's jobs report could be a dollar downer

It’s worth noting that the US Federal Reserve (Fed) policymakers remain hawkish and back the tapering of bond purchases. That said, Philadelphia Federal Reserve Bank President Patrick Harker told the Wall Street Journal that he supports the start of bond-buying pullback later this year. His hawkish statements precede the IMF’s comments suggesting an upward revision to 2021 GDP and rate hike calls during the second half of 2022, not to forget the start of monetary policy adjustments, via bond purchase limits, in early 2022.

Elsewhere, challenges to the global economic recovery gain momentum as Delta variant of the coronavirus (COVID-19) creates havoc in Asia-Pacific, also probing the UK’s economics, of late. That said, Australia registers an increase in covid counts to 41 while Indonesia enters emergency until July 20. Further, the virus outbreak also pushed Germany to stop British travellers from the bloc, which in turn makes today’s UK-German meeting the key.

On a different page, Jens Weidmann, European Central Bank (ECB) Governing Council member and Bundesbank President, said on Thursday that he is sceptical about tolerating inflation overshoot. The same increases importance of today’s speech from ECB President Christine Lagarde titled “What have we learnt in 2020?" The speech also becomes the key as the regional central bank holds a surprise meeting the next week.

Above all, the US jobs report for June becomes crucial after May’s negative surprise and recently increasing inflation expectations, as well as hawkish Fed comments. Should the data confirms bullish bias, EUR/USD can refresh the multi-day low to test a short-term support line surrounding the 1.1800.

Technical analysis

Although bearish impulsive gains accolades, a downward sloping trend line from May 05 will challenge EUR/USD bears around the 1.1800 threshold amid nearly oversold RSI conditions. Meanwhile, recovery moves need to cross the 1.1975–90 resistance region, encompassing 100-SMA, May’s low and late June tops, to restore the short-term buyers’ confidence.