EUR/USD bulls flex muscles near 1.0780 hurdle amid mixed feelings of ECB, Fed hawks, focus on US NFP

• EUR/USD grinds at weekly top after posting the biggest daily gains in two months.
• Softer Eurozone inflation, mixed comments from ECB officials prod Euro buyers.
• Unimpressive US data, doubts about Fed’s June rate hike weigh on US Dollar.
• US employment numbers need to print strong outcomes to recall EUR/USD bears.

EUR/USD clings to mild gains around 1.0760-65 as it lacks follow through of the previous day’s heavy run-up amid the market’s cautious mood ahead of the key US employment data. Apart from the pre-data anxiety, the doubts about the European Central Bank’s (ECB) hawkish play also prod the Euro pair buyers, especially amid downbeat EU inflation figures and mixed ECB talks.

That said, Eurozone Inflation, per the European Central Bank's (ECB) preferred gauge of inflation, namely the annual Harmonised Index of Consumer Prices (HICP), rose 6.1% YoY in May versus 6.3% expected and 7.0% prior. Further details suggest that the Core HICP also softened to 5.3% from 5.6% prior and 5.5% market forecasts.

On a different page, the accounts of the European Central Bank's (ECB) May policy meeting revealed that a number of members initially expressed a preference for increasing the key interest rates by 50 basis points.

Also defending the ECB haws were comments from ECB Governing Council member Klaas Knot who said it’s not unlikely that 2024 interest rate-cut bets will have to be adjusted. On the same line, ECB Vice President Luis de Guindos said on Thursday, “Recent inflation data are positive but still far from the target.” Furthermore, ECB Governing Council member Olli Rehn also said, “Core inflation must slow before mulling easing.”

Above all, President Christine Lagarde said, “We need to continue our hiking cycle until we are sufficiently confident that inflation is on track to return to our target in a timely manner.”

In the case of the US Dollar, the market’s pricing of the Federal Reserve (Fed) rate hike, which dropped from 17 basis points (bps) in June on Wednesday to 7 bps on Thursday, weighed on the greenback and the Treasury bond yields. While tracing the downbeat Fed bets, mixed US data and Fed talks could be held responsible.

That said, the US ADP Employment Change eased to 278K in May from 291K prior (revised) but crossed the 170K market forecasts. On the same line, the weekly Initial Jobless Claims rose past 230K prior to 232K, versus 235K expected. Further, US ISM Manufacturing PMI eased to 46.9 in May compared to 47.0 anticipated and 47.1 previous readings whereas S&P Global Manufacturing PMI softened to 48.4 from 48.5 prior. Additionally, the US Employment Cost Index eased while the consumer sentiment gauge improved but the details were unimpressive.

Furthermore, Federal Reserve Bank of St. Louis President James Bullard recently published an analysis wherein the Fed hawk accepts that the prospects for continued disinflation are good but not guaranteed, and continued vigilance is required.

Looking ahead, ECB officials’ comments and risk catalysts may entertain EUR/USD traders ahead of the all-important US jobs report and the last round of the Fed talks ahead of the pre-Federal Open Market Committee (FOMC) blackout period for policymakers. Also important to watch is the US Senate’s passage of the debt-ceiling bill. Forecasts suggest, Nonfarm Payrolls (NFP) to ease to 190K from 253K prior while the Unemployment Rate is also expected to increase to 3.5% from 3.4%.

Technical analysis

EUR/USD’s successful break of a one-month-old descending trend line, close to 1.0690-85 at the latest, joins the receding bearish bias of the MACD indicator to keep the Euro bulls hopeful in crossing the immediate hurdle comprising the 100-day Exponential Moving Average (EMA) of near 1.0775.