EUR/USD retreats towards 1.0350 amid risk aversion ahead of EU inflation, Fed’s Powell

• EUR/USD begins the week’s trading with a downside gap.
• Concerns surrounding Russian oil price cap, China’s Covid conditions weigh on the prices.
• ECB’s Makhlouf teases smaller interest rate hikes in 2023.
• Risk catalysts are the key ahead of inflation numbers, Fed Chair Powell’s speech and the US jobs report.

EUR/USD remains pressured around 1.0380, after beginning the week’s trading with a downside gap, as the risk-off mood underpins the US Dollar’s demand during Monday’s Asian session. Also likely to have weighed on the quote could be the downbeat comments from European Central Bank Governing Council Member Gabriel Makhlouf, as well as anxiety ahead of the key Eurozone inflation data and the US Nonfarm Payrolls (NFP) for November.

“The European Central Bank will likely increase interest rates by smaller increments next year if further hikes are needed,” said ECB’s Makhlouf on Sunday, per Reuters. The Irish central bank Chief Mokhlouf also added that he thinks by the second half of next year we'll see it (inflation) lower.

Elsewhere, Coronavirus fears in China joined the protest against the government’s Zero-Covid policy to add to the market’s woes. China reported an all-time high of COVID-19 daily cases with nearly 40,000 new infections on Saturday. The dragon nation has been using the stringent policy to limit the virus spread but the outcome hasn’t been a positive one so far. On the contrary, a deadly fire in a building was allegedly linked to the virus-linked lockdown measures and resulted in mass protests in Beijing and Shanghai.

Additionally, weighing on the EUR/USD prices could be the looming concerns over the bloc’s push for a price cap on Russian energy exports. That said, the talks among the members of the Group of Seven Nations (G7) and the European Union (EU) continue to drag on the Russian oil price cap. As per the latest updates, the $65 per barrel is the sticking point as discussions are likely to resume on Monday.

While portraying the mood, the S&P 500 Futures drop 0.30% intraday while the US 10-year Treasury yields remain unchanged near 3.69% by the press time.

It should be observed, however, that the prospect of the Fed’s slower pace of interest rate hikes weighed on the US Dollar during the last week.

Moving on, Wednesday’s monthly inflation data from the bloc and a speech from Fed Chair Jerome Powell will be crucial for the EUR/USD pair traders. Following that, November’s job reports from the US could direct the moves. Above all, chatters surrounding the central banks and China’s COVID-19 conditions will help predict the pair’s next momentum.

Technical analysis

A horizontal area comprising multiple levels marked since May 12, between 1.0375 and 1.0355, appears a tough nut to crack for the EUR/USD bears.