EUR/USD portrays tepid start to 2023 after a volatile year, ECB vs. Fed talks, US NFP eyed

• EUR/USD remains defensive at the highest levels in 12 days, struggles to extend two-day uptrend.
• Hawkish comments from ECB’s Lagarde contrast with German FinMin’s expectations and probe bulls.
• Holidays in multiple markets, festive mood also restrict EUR/USD moves.
• German PMIs for December eyed for intraday moves, major attention is on the FOMC Minutes, US FOMC and German inflation.

EUR/USD treads water around the 1.0700 threshold amid holidays in the global markets during early Monday. In doing so, the major currency pair struggles to justify hawkish comments from European Central Bank (ECB) President Christine Lagarde around the three-week high while struggling to extend the previous two-day uptrend.

That said, ECB’s Lagarde signaled that the bloc’s central bank must stop quick wage growth from fuelling inflation during her interview with a Croatian newspaper on Saturday, reported Reuters.

Following that, comments from Germany's Finance Minister (FinMin) Christian Lindner seemed to have challenged the EUR/USD bulls as he expects, per Reuters, that inflation in Europe's biggest economy to drop to 7% this year and to continue falling in 2024 and beyond, but believes high energy prices will become the new normal.

It’s worth noting that downbeat prints of the US data and the year-end consolidation dragged the US Dollar Index (DXY) to refresh a seven-month low the previous day. That said, Chicago Purchasing Managers’ Index crossed the market consensus of 41.2 and the 37.2 previous readings to print the 44.9 figures for December. Even so, the activity gauge signaled contraction for the fourth consecutive month.

It should be observed that the DXY printed the biggest yearly gains since 2015 but the EUR/USD pair could only ended up posting the second Year-on-Year loss as concerns surrounding the ECB appear more hawkish vis-à-vis the US Federal Reserve.

As a result, Wednesday’s Minutes of the latest Federal Open Market Committee (FOMC) meeting, as well as Friday’s December month employment numbers for the US, will be crucial for the pair traders to watch. Also important will be today’s final readings of Germany’s S&P Global/BME Manufacturing PMI for December, expected to confirm 47.4 initial readings, as well as the first prints of Germany’s key inflation gauge for December, namely Harmonized Index of Consumer Prices, likely to rise by 11.8% YoY versus 11.3% prior.

Given the likely firmer prints of German economics, the EUR/USD bulls are expected to keep the reins unless Fed surprises the markets with hawkish Minutes and/or US Nonfarm Payrolls (NFP) arrive in strong.

Technical analysis

Overbought RSI conditions probe EUR/USD bulls around the seven-month-high surrounding 1.0735. The pullback moves, however, remain elusive beyond the previous resistance line from May 2021, close to 1.0520 at the latest.