EUR/USD steadies near 1.1300 as yields retreat ahead of Eurozone inflation, US NFP

• EUR/USD pares the first weekly loss in three with recent mild gains.
• German Bund yields poked 32-month high, US bond coupons ease from March 2021 levels.
• US inflation excitations, soft data triggers consolidation ahead of the key data.
• Fed hawks eye stronger NFP, ECB policymakers may not be satisfied with firmer inflation.

EUR/USD hangs in balance around 1.1300 heading into the key Friday’s European session.

In doing so, the major currency air licks wounds given by the FOMC minutes amid mixed concerns and cautious sentiment ahead of the Eurozone Consumer Price Index (CPI) for December and the US jobs report for the said month. However, the quote remains on the way to flash the first negative weekly closing in three as bears cheer firmer yields.

Hopes of overcoming the negative yields on German Bunds seem to underpin the EUR/USD rebound ahead of the European session. The Bund yields jumped to the highest since May 2019 the previous day after Germany’s inflation gauge, namely the Harmonized Index of Consumer Prices (HICP), eased in December while matching downbeat forecasts.

Earlier in the week, Latvian central bank governor and ECB governing council member Martins Kazaks said that the ECB is ready to raise rates and cut stimulus if needed.

It’s worth noting that the pre-NFP trading lull and a two-week low of the US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, underpin the latest pullback in the US bond yields and favor EUR/USD buyers. On the same line could be the recently downbeat US Factory Orders, Weekly Jobless Claims, ISM Services PMI and Good Trade Balance.

Even so, the hawkish Fedspeak and FOMC Minutes, which earlier propelled yields by citing higher odds of the Fed’s faster rate hike and balance sheet alteration keeps EUR/USD bears hopeful. That said, St. Louis Fed President James Bullard pushed for a March rate hike whereas Federal Reserve Bank of San Francisco President and an FOMC member Mary C. Daly marked the need to raise interest rates to keep the economy in balance.

Amid these plays, the US 10-year Treasury yields consolidate recent gains around            a nine-month high while the S&P 500 Futures and EuroStoxx Future print mild gains. However, the market sentiment remains dull as the pre-data caution joins escalating covid woes and the US-China tussles, recently over trade and human rights.

Looking forward, Eurozone CPI, expected to ease to 4.7% from 4.9% YoY may allow EUR/USD bears to retake controls ahead of the US jobs report. Even if the quote rises past the 4.7% forecast, pandemic woes challenge the recently hawkish rhetoric at the ECB and can keep the pair pressured.

On the contrary, US Nonfarm Payroll (NFP) is expected to rise from 210K to 400K while the Unemployment Rate may have eased to 4.1% from 4.2% prior. The underemployment rate, however, is likely rising from 7.8% to 8%. That said, firmer expectations from the US jobs report may help Fed hawks to keep reins, which in turn can weigh on EUR/USD prices.

Technical analysis

A sustained trading below the 10-DMA level of 1.1315, as well as the weekly resistance line near 1.1320, directs EUR/USD bears towards an ascending support line from November 24, around 1.1260.