EUR/USD remains on the defensive below 1.1000, seems vulnerable amid modest USD strength

• EUR/USD comes under some selling pressure and is undermined by reviving USD demand.
• Bets for more Fed rate hikes turn out to be a key factor lending some support to the buck.
• Expectations that the ECB will soon end its rate-hiking cycle contribute to the offered tone.

The EUR/USD pair meets with some supply on the first day of a new week and retreats further from a four-day peak, around the 1.1040 area touched in reaction to the rather unimpressive headline US NFP print on Friday. Spot prices slip back below the 1.1000 psychological mark during the Asian session and for now, seem to have stalled a two-day-old recovery from the 100-day Simple Moving Average (SMA), around the 1.0910 area, or a nearly one-month low touched last Thursday.

The US Dollar (USD) attracts some dip-buying in the wake of growing acceptance that the Federal Reserve (Fed) will stick to its hawkish stance and turns out to be a key factor exerting some pressure on the EUR/USD pair. The closely-watched US monthly employment details showed that the economy added 187K jobs in July, which, along with a downward revision of readings for May and June, suggested demand for workers was slowing. That said, solid wage growth and an unexpected downtick in the unemployment rate pointed to continued tightness in the labour market. This keeps the door for one more 25 bps rate hike by the Federal Reserve (Fed) in September or November wide open and lends some support to the buck.

The shared currency, on the other hand, is undermined by expectations that the European Central Bank (ECB) will halt its streak of nine consecutive interest rate hikes in September amid signs that the underlying inflation in the Euro Zone has peaked. In fact, Fitch Ratings said on Friday that falling Euro Zone inflation puts ECB rates peak within sight. Moreover, the ECB, in its economic bulletin published on Friday, noted that the ECB noted that the underlying inflation in the region likely peaked during the first half of 2023. This is seen as another factor that contributes to the offered tone surrounding the EUR/USD pair. Bears, however, might refrain from placing aggressive bets ahead of this week's release of the US inflation figures.

The crucial US CPI report is due on Thursday, which will play a key role in influencing market expectations about the Fed's future rate-hike path and driving the USD demand. In the meantime, traders on Monday will take cues from the Euro Zone macro data - German Industrial Production and Sentix Investor Confidence. Meanwhile, there isn't any relevant economic data due for release from the US, leaving the USD at the mercy of speeches by a slew of FOMC members. Any policy-related remarks might provide some impetus to the buck and allow traders to grab short-term opportunities around the EUIR/USD pair. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for spot prices is to the downside.

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