EUR/USD pulls back from monthly highs near 1.1370, remains well support above 1.1300 amid holiday-thinned trade

• EUR/USD has fallen back after hitting fresh monthly highs on Wednesday and is back to trading just above 1.1300.
• Amid holiday trading conditions, hot Spanish CPI and hawkish ECB rhetoric has not impacted euro trade much.

After hitting its highest levels of the month on Wednesday just under 1.1370 on Wednesday, EUR/USD has pulled back to within recent ranges. Earlier in the session, the pair tested its 21-day moving average at the 1.1300 level, but has since rebounded to around the 1.1330, where it trades lower by about 0.1% on the session. The pair’s failure to break above December’s 1.1240-1.1360ish ranges is not overly surprising given that markets have been very much on holiday mode this week. Indeed, for many European nations, Thursday is the final trading session of the year, whilst for most European nations that do see markets open on Friday, it is a half-day.

Most FX strategists had been expecting that trading conditions this week would be rangebound and the price action thus far has lived up to the bill. Things should get more exciting from next week with the release of the key December US labour market report and December US ISM PMIs surveys. Also out next week is the flash estimate of Eurozone Consumer Price Inflation in December. Ahead of the release of the Eurozone aggregate figures, individual countries will be reporting and the Spanish flash numbers are already out. Data released on Thursday morning showed that the YoY rate of CPI in Spain surged to 6.7% in this month from 5.5% a month earlier, well above expectations for a rise to 5.8%.

The data didn’t provoke much of a reaction in the euro at the time but is an early indication of upside risks to the market’s consensus forecast that next week’s Eurozone flash CPI number will drop to 4.7% this month from 4.9% in November. The euro also largely ignored hawkish commentary from the ECB’s Austrian central bank head Robert Holzmann, who on Thursday called for the bank to phase out negative interest rates and unconventional monetary policy in 2022. In terms of the rest of Thursday’s session, things will for the most part be quiet, though traders will be keeping an eye on the release of the weekly US jobless claims report at 1330GMT, followed by the Chicago PMI at 1445GMT.