EUR/USD struggles around parity amid hawkish ECB/Fed speakers, German inflation eyed

EUR/USD buyers seem to catch a breather after a volatile start to the NFP week. That said, the major currency pair initially slumped towards the one-week low before closing the day with mild gains around the parity levels, not to forget the retreat from 1.0029. In doing so, the quote struggled to justify multiple catalysts comprising recession fears in the eurozone and hawkish comments from the European Central Bank (ECB) officials, as well as firmer US data and hopes of faster rate hikes from the US Federal Reserve (Fed).

Fed Chair Jerome Powell led the policy hawks towards ignoring the economic slowdown fears in a mission to tame inflation, which in turn propelled the US Dollar Index (DXY) to a fresh 19-year high, before stepping back to 108.80. While praising the market’s reaction to the Jackson Hole speeches of the Fed policymakers, Minneapolis Federal Reserve Bank President Neel Kashkari stated that people now understand how serious we are about getting inflation back to 2%.

It should be noted that Dallas Fed Manufacturing Business Index improved to -12.9 versus -20.2 expected and -22.6 prior.

On the other hand, ECB Chief Economist Philip Lane appeared hawkish on the policy outlook as he said, “a steady pace - that is neither too slow nor too fast - in closing the gap to the terminal rate is important for several reasons," Lane explained. "The appropriate size of the individual increments will be larger the wider the gap to the terminal rate and the more skewed the risks to the inflation target."

Additionally, European Commission President Ursula von der Leyen renewed fears over the energy crisis as she reported that the EU is preparing an emergency intervention in its energy market to drive down skyrocketing electricity prices

Amid these plays, equities remain downbeat but the US 10-year Treasury yields grew nearly eight basis points (bps) to 3.11% at the latest. It’s worth observing that the market pricing of a 75 bps rate hike in September grew to 72.5% at the latest, per CME’s FedWatch Tool.

Looking forward, the preliminary readings of August month German Harmonized Index of Consumer Prices (HICP), expected 8.7% YoY versus 8.5% prior, will offer immediate directions. Following that, US Consumer Confidence for the stated month and comments from various Fed policymakers will be important for the EUR/USD rate guidance. It should be noted that the hawkish central banks and recession woes keep the US dollar on the front foot, making sellers hopeful.

Technical analysis

A clear downside break of the 0.9900 threshold appears necessary for the EUR/USD bears to retake control. The recovery moves, however, need validation from a 10-DMA hurdle surrounding 1.0015.