EUR/USD suffers altitude sickness around 1.0750, US NFP, Biden eyed

• EUR/USD struggles to defend buyers after cheering the biggest daily jump in a fortnight.
• Pre-NFP anxiety joins mixed headlines concerning China, a pause in yields to probe bulls.
• Early signals for US employment have been softer, suggesting the pair’s further advances.
• ECBSpeak, Eurozone Retail Sales and US ISM Services PMI are the extra catalysts to track for fresh impulse.

EUR/USD retreats from monthly high as bulls take a breather during the pre-NFP trading lull on Friday. In doing so, the major currency pair pares the heaviest gains in two weeks around 1.0750 amid early morning in Europe.

In addition to the market’s anxiety ahead of the key US jobs report, mixed headlines concerning China and sluggish US Treasury yields also challenge the EUR/USD buyers of late. On the same line were the recently hawkish comments from the Fed policymakers. However, downbeat prints of early signals for the US employment conditions and the upbeat tone of the ECBSpeak seem to keep the quote positive.

That said, the S&P 500 Futures struggle around 4,175 and the US Treasury yields pause the previous fall near 2.92%, suggesting the market’s cautious optimism. It should be noted that the Wall Street benchmarks rose the most in a week whereas the bond coupons remained pressured the previous day.

Talking about China news, “USTR is seeking a 'strategic realignment' with China, tariff structure that 'makes sense'.”, said Deputy US Trade Representative (USTR) Sarah Bianchi. The positive mood, however, was challenged by statements like, “‘All options are on the table’ regarding tariff decisions on Chinese imports.” Further, China’s Foreign Ministry spokesman Zhao Lijian conveyed dislike for the US’ law banning imports from Xinjiang and weighed on sentiment, as well as EUR/USD prices. Additionally, Deputy USTR Bianchi’s comments suggest faster trade talks with Taiwan may not be liked by China and hence test the market’s mood.

It should be noted that downbeat early signals for today’s US job numbers joined sluggish yields to weigh on the US dollar the previous day. That said, the US Dollar Index (DXY) dropped the most in a fortnight as market players took relief from softer US data, after two consecutive days of hawkish Fed scenario. On Thursday, the US ADP Employment Change eased to 128K for May, versus 300K forecasts and a downwardly revised 202K previous reading. The Weekly US Initial Jobless Claims, on the other hand, dropped to 200K compared to 210K anticipated and 211K prior. Further, Nonfarm Productivity and Unit Labor Costs both improved in Q1, to -7.3% and 12.6% respectively, compared to -7.5% and 11.6% figures for market consensus. Furthermore, US Factory Orders for April softened to 0.3%, from a revised 1.8% in March and 0.7% forecast.

At home, the Eurozone Producer Price Index (PPI) came in softer but couldn’t stop European Central Bank (ECB) policymaker Francois Villeroy de Galhau to say on Thursday that inflation is too high and too broad. “Normalization of the ECB policy is required,” adds the policymaker while also saying, “European growth will be slower in the next two years.”

Looking forward, EUR/USD traders will not only track the US NFP for May, expected to ease to 325K versus 428K prior, as well as the US ISM Services PMI for May, likely to retreat from 57.1 to 56.4. The reason is the presence of Eurozone Retail Sales for April and US President Joe Biden’s speech. Also important to track will be a speech from ECB Governing Council member Robert Holzmann.

Read: Nonfarm Payrolls Preview: It is all about the money, three scenarios for wage growth and the dollar

Technical analysis

A daily closing beyond the 50-DMA level of 1.0721 keeps buyers hopeful of crossing a downward sloping resistance line from February, around 1.0785 at the latest. However, March’s low near 1.0810, acts as an extra filter to the north to test the EUR/USD bulls.

Meanwhile, sellers remain cautious until the quote stays beyond the 23.6% Fibonacci retracement of the February-May downside, near 1.0620.