EUR/USD: Strong yields prod Euro optimists near 1.0950, Eurozone Retail Sales, US NFP eyed

EUR/USD struggles to regain buyer’s acceptance as it remains sidelined near 1.0950 despite bouncing off a one-month low the previous day. In doing so, the Euro pair portrays the market’s cautious mood ahead of the top-tier data from the old continent and the US. Also exerting downside pressure on the quote could be comparatively stronger economic fears surrounding the bloc than the US, even as Fitch Ratings downgraded Washington’s credit rating.

Despite the US Dollar-driven corrective bounce mixed Eurozone data and the lack of confidence among the European Central Bank (ECB) Officials seem to keep the EUR/USD bears hopeful as the top-tier data looms.

On Thursday, Eurozone Producer Price Index (PPI) for June dropped to the lowest level in three years with -3.4% YoY figures, versus -3.1% expected and -1.6% prior (revised). Further, the final readings of the bloc’s HCOB Composite PMI and Services PMI for July deteriorated while the same activity numbers for Germany improved from the initial forecasts for the said month.

European Central Bank board member Fabio Panetta conveyed his support for high interest rates for a longer time via a webinar. The policymaker, however, also added, “Inflation risks are balanced and economic activity is weak.”

On the other hand, the mixed US data triggered the US Dollar’s retreat from the highest level in a month, strong US Treasury bond yields put a floor under the Greenback’s haven demand. Additionally, hopes of witnessing upbeat US employment data, backed by firmer early signals, allow the USD to stay on the bull’s radar despite the latest U-turn.

That said, US ISM Services PMI dropped to 52.7 for July from 53.9 prior, versus 53.0 market forecasts. The details of the ISM Services Survey unveiled that Employment Index and New Order Index also came in softer but the Prices Paid jumped to a three-month high. Further, the US Factory Orders improved to 2.3% MoM for June versus 0.4% prior (revised) and 2.2% market forecasts while Initial Jobless Claims matches 227K expected figures for the week ended on July 28 from 221K prior. Additionally, the preliminary readings of the Nonfarm Productivity for the second quarter (Q2) rallied by 3.7% compared to 2.0% expected and -1.2% previous readings whereas Unit Labor Cost eased to 1.6% for the said period versus 2.6% consensus and 3.3% prior.

Talking about the yields, the US 10-year Treasury bond yields rose to a fresh high since November 2022 before ending the trading day near 4.18% whereas the Wall Street benchmark marked mild losses by the end of Thursday’s North American session. It’s worth noting that the US bond coupons are heading towards the worrisome levels that previously triggered economic hardships, which in turn prod EUR/USD bulls.

Looking ahead, Germany’s Factory Orders and Eurozone Retail Sales for June will be closely observed amid fears of weak economic activity, which if confirmed could weigh on the EUR/USD. Following that, the US employment report for July will be closely watched as Fed’s September rate hike has been talked about. That said, headline Nonfarm Payrolls (NFP) bears downbeat market forecasts, likely softening to 200K versus 209K prior. Further, the Unemployment Rate is likely to remain static at 3.6%.

Technical analysis

Despite the corrective bounce off the 100-DMA, around 1.0920 by the press time, the EUR/USD bears remain hopeful unless providing a daily close beyond the support-turned-resistance line stretched from May 31, close to 1.0990 at the latest.