EUR/USD: Hawkish bets on ECB favor bulls to aim for 1.0115 hurdle, US inflation eyed

• EUR/USD remains firmer for the second consecutive day as it battles 50-DMA hurdle.
• ECB hawks signal further tightening of monetary policy despite recession woes.
• Fed policymakers remained hopeful of higher rates before entering blackout period.
• China, Russia-linked headlines tests buyers amid sluggish session, US CPI is the key.

EUR/USD grinds higher around 1.0090 during Monday’s sluggish session as China’s off and a light calendar joins pre-data anxiety. However, the recently hawkish comments from the European Central Bank (ECB) policymakers keep the pair buyers hopeful.

“Many policymakers saw a growing probability that they will need to take the rate into "restrictive territory", jargon for a level of rates that causes the economy to slow, at 2% or above,” mentioned Reuters while quoting five sources. Among them, comments from Bundesbank President and ECB  Governing Council member Joachim Nagel and Bank of Greece Governor Yannis Stournaras seem to gain major attention.

Also read: ECB officials back further tightening, as they see rates into ‘restrictive territory’

On the other hand, Federal Reserve Governor Christopher Waller was the prominent one as he said on Friday that he supports another significant hike in two weeks. On the same line was Kansas City Fed President Esther George who said, as reported by Reuters, “Case for continuing to remove policy accommodation is clear cut.” Furthermore, Cleveland Federal Reserve Bank President Loretta Mester said, “One inflation report is insufficient to alter one's outlook.” The policymaker also stated that he sees policy rates rising slightly above 4% by early 2023.

It should be noted that US Treasury Secretary Janet Yellen also signaled challenges for the US Federal Reserve (Fed) going forward as she said during the CNN interview, “Fed is going to need skill and luck to bring inflation down while maintaining labor market strength.”

On a different page, fresh geopolitical and trade headlines surrounding China and Russia appear to probe the previous risk-on mood, mainly backed by the hopes that the inflation is easing and the policymakers will be able to tackle the economic crisis. The same challenges the EUR/USD buyers as China’s holiday restricts the market’s moves.

That said, US President Joe Biden is ready to hit China with broader curbs on US chip and tool exports that restrict the previously upbeat market sentiment. On the same line could be the analysis suggesting a 20-year low oil demand from China due to covid curbs, shared by Reuters. It’s worth mentioning that the fears emanating from the Russia-Ukraine crisis, due to Moscow’s retreat, are also a risk-negative catalyst.

While portraying the mood, the S&P 500 Futures struggle to extend the three-day uptrend around a fortnight top, easing from the intraday high of 4,094.50 of late. On the same line are the US 10-year Treasury yields, down one basis point (bp) to 3.31% at the latest.

Looking forward, final readings of the Eurozone and German inflation data will join the political plays surrounding the bloc’s energy crisis to direct short-term EUR/USD moves. Though, more important will be the US Consumer Price Index (CPI) and Retail Sales for August, as well as the preliminary readings of the Michigan Consumer Sentiment Index for September.

Also read: EUR/USD Weekly Forecast: Bears take a breath, but don’t expect them to give up

Technical analysis

Although a two-month-old horizontal area and the 50-DMA challenge EUR/USD bulls, around 1.0090-95 and 1.0115 in that order, the pair’s sustained trading beyond a three-week-old previous resistance line, close to 0.9980 at the latest, keeps the upside potential intact.