EUR/USD: Bears eye 1.1300 as USD rebounds amid inflation fears

• EUR/USD consolidates the biggest daily gains in a month while refreshing intraday low.
• US NFP disappointed greenback bulls but details keep Fed hawks on the table.
• EU inflation jumped to post-pandemic high, ECB’s Schnabel, Lane raise concerns over energy prices.
• Off in Japan, light calendar restricts market moves, US CPI will be the key.

EUR/USD remains on the back foot around 1.1340-35 as traders pare the biggest daily jump in a month during early Monday morning in Europe.

The major currency pair rallied the previous day after the US jobs report for December flashed mixed signals. Adding to the bullish bias were hawkish comments from the European Central Bank (ECB) officials and a jump in the Eurozone inflation data for the last month. However, details of the US employment keep the Fed hawks on the table ahead of this week’s key US Consumer Price Index (CPI). As a result, the cautious sentiment allows traders to recover Friday’s gains.

That said, the headline US Nonfarm Payrolls (NFP) disappointed markets with 199K figures for December versus 400K forecasts and 249K prior (upwardly revised from 210K). However, the Unemployment Rate dropped to 3.9% compared to 4.1% market consensus and 4.2% in November while the U6 Underemployment Rate that fell to 7.3% against November's downwardly revised 7.7%, both closing in the pre-pandemic levels. As it can be easily observed, the NFP-led disappointment was largely overruled by the Unemployment Rate and U6 Underemployment Rate, which in turn seems to challenge the market sentiment of late.

Elsewhere, the first readings of the Eurozone CPI for December offered a positive surprise of 5.0% while crossing the previous month’s figure of 4.9% and 4.7% market consensus. As the inflation figures reached the highest level since the early pandemic days, EUR/USD bulls recollect Thursday’s comments from European Central Bank Chief Economist Philip Lane to tighten the grips.

Following that, ECB board member Isabel Schnabel said on Saturday, “Rising energy prices may force the European Central Bank to stop ‘looking through’ high inflation and act to temper price growth.”

It should, however, be noted that the virus woes are firmer in the bloc than the US while the Fed versus the ECB battle also favors the EUR/USD bears. Furthermore, market bets for the Fed rate hikes in March stay around 80% while top banks, like Goldman Sachs, expect four rate hikes in 2022, which in turn challenges the pair buyers ahead of Wednesday’s US inflation data, as well as Friday’s US Retail Sales, for December.

For an intraday basis, an absence of Japanese traders restricts bond moves and hence the latest pullback may continue.

Read: Inflation and geopolitics in the week ahead

Technical analysis

Although the quote offered a decisive break of the 21-day EMA, backed by the bullish MACD signals, EUR/USD pair traders remain cautious until the prices stay between a two-month-old ascending triangle pattern. That said, an envelope of the 50-day EMA and the 21-day EMA, respectively near 1.1375 and 1.1325, restricts short-term EUR/USD moves.