EUR/USD: US holiday to restrict Euro moves, further downside hinges on 1.0750 break and ECB’s Lagarde

EUR/USD bears keep the reins at the lowest level in a week, after falling heavily in the last two consecutive days. That said, the Euro pair remains pressured around 1.0775 during the early Monday morning in Asia.

Euro bears initially retreated in the last week amid a downward revision to the Q2 US GDP growth and softer PMIs before the upbeat prints of inflation clues and mostly impressive employment statistics weighed on the major currency pair. On the top, a softer inflation figure from the bloc and a slightly dovish comment from the European Central Bank (ECB) official also weighed on the quote.

Inflation in the Eurozone per the European Central Bank’s (ECB) favorite gauge, namely the Harmonized Index of Consumer Prices (HICP), rose to 0.6% MoM versus -0.1% expected and prior readings whereas the YoY figures remained reprinted at 5.3% figures compared to 5.1% YoY market estimations. Over the past four months, the average monthly increase in core HICP has more than halved to 0.20% MoM than 0.6% reported in the first four months of 2023.

That said, European Central Bank (ECB) policymaker, Francois Villeroy de Galhau said that the underlying inflation has peaked since April and appears to have begun its decline. Adding to this, ECB’s Villeroy also said, per Reuters, that keeping rates high long enough matters more than the level.

Talking about the US data, the headline US Nonfarm Payrolls (NFP) rose to 187K in August versus 170K expected and 157K prior (revised) even as the Unemployment Rate marked an uptick to 3.8% from 3.5% market forecasts and previous readings. Further, the Average Hourly Earnings also eased to 0.2% and 4.3% compared to 0.4% and 4.4% respective priors. Additionally, the US ISM Manufacturing PMI also impressed the US Dollar buyers with the 47.6 figures versus analysts’ estimation of 47.0 versus 46.4 previous readings.

Following the data, Federal Reserve Bank of Cleveland President Loretta J. Mester downplayed the increase in the Unemployment Rate to 3.8% by stating that the level "is still low." The policymaker termed the US job market as strong despite recent rebalancing as she spoke at an event in Germany. About inflation, Fed’s Mester acknowledged that progress has been made but noted it remains elevated.

With this, the US Dollar managed to close on the positive side for the seventh consecutive week despite marking the lowest weekly gain since early July.

It should be observed that the decline in the benchmark US 10-year Treasury bond yields has been declining in the last two consecutive weeks after rising to the highest levels since 2007, to 4.18% at the latest. Further, the Wall Street benchmarks also improved in the recent few days, despite Friday’s sluggish closing, which in turn prod the EUR/USD traders.

Moving on, the US markets are closed for the Labor Day holiday and hence the EUR/USD traders may witness a lackluster day but ECB President Christine Lagarde might help the momentum traders. Should the policymaker manage to keep her hawkish tone, the Euro may post a corrective bounce. Additionally important will be Wednesday’s US ISM Services PMI for August.

Technical analysis

A daily closing below an ascending support line from March 15, now immediate resistance near 1.0785, directs EUR/USD toward a downward-sloping trend line from late June, close to 1.0750 at the latest.