EUR/USD stays defensive around 1.1000 as German data prods ECB hawks, Fed talks appear mixed

• EUR/USD remains sidelined after pausing a two-day recovery the previous day.
• Downbeat German statistics flag recession woes and push ECB towards policy pivot.
• Fed policymakers appear less convincing but US Treasury bond yields put a floor under US Dollar and weigh on Euro.
• Final readings of German inflation data, US trade balance for June will entertain Euro traders, US inflation is the key.

EUR/USD treads water around 1.1000 amid the early hours of Tuesday’s Asian session, after probing a two-day uptrend the previous day. It’s worth noting that the US Dollar’s inability to defend the week-start gains contrasts with the recession fears from the bloc, mainly inflicted by German data, to trouble the Euro traders amid a light calendar ahead of this week’s top-tier inflation numbers.

On Monday, the Eurozone Sentix Investor Confidence improved to -18.9 for August from -22.5 in July, versus the market consensus of a -23.4 reading. Following the data, Sentix Managing Director Patrick Hussy termed Germany as the sick man of the Eurozone while also adding, “The economy in the Eurozone remains in recession mode. There can therefore be no joy about this development.”

Further, German Industrial Production figures for June dropped to -1.5% MoM versus -0.4% expected and -0.1% prior (revised) while the non-seasonally adjusted figures marked a 1.7% fall in German IP compared to 0.0% previous readings. During the last week, softer prints of the Eurozone inflation data contrast with an improvement in the bloc’s growth figures to allow the Euro to remain firmer. However, the chatters about the European Central Bank (ECB) peak rates were triggered by the global rating agency Fitch Ratings and weighed on the Euro afterward as it said on Friday that the falling Eurozone inflation puts the ECB rates peak within sight. On the same line was the ECB article which stated that the “underlying inflation likely peaked in the first half of 2023.”

On the other hand, the US Dollar remained firmer on early Monday after the hawkish comments from Federal Reserve (Fed) Governor Michelle Bowman as he said that additional rate increases will likely be needed to lower inflation back to target. However, the greenback dropped afterward as New York Fed President John C. Williams said he expects that interest rates could begin to come down next year. The policymaker also conveyed hopes of witnessing a slightly higher unemployment rate as the economy cooled.

Against this backdrop, Wall Street ended Monday on the positive side while probing the US Treasury bond yields as they consolidated Friday’s heavy fall, which in turn put a floor under the US Dollar and weigh on the EUR/USD. That said, the benchmark US 10-year Treasury bond yields rose to 4.10% by the press time.

Looking ahead, the final readings of Germany’s inflation data for July, per the Harmonized Index of Consumer Prices (HICP) measure, may entertain EUR/USD traders ahead of the US foreign trade numbers for June. Above all, the US Consumer Price Index (CPI) will be important to watch for clear directions as the market’s bets on the Fed’s September rate hike languishes of late.

Technical analysis

EUR/USD remains sidelined between the 100-DMA and a downward-sloping resistance line from July 18, respectively near 1.0925 and 1.1010 by the press time.