EUR/USD steadies near 1.1000 as firmer Eurozone inflation, GDP prods Euro bears, US ISM PMI eyed

• EUR/USD remains sidelined after reversing Friday’s corrective bounce off three-week low the previous day.
• Upbeat Eurozone data jostles with fresh challenges to risk to test Euro bears.
• Final readings of Germany’s HCOB Manufacturing PMI, US S&P Global PMIs and ISM Manufacturing PMI for July will be in focus.
• Retreat in hawkish Fed bias, upbeat comments from ECB’s Lagarde lure Euro bulls.

EUR/USD stabilizes around the 1.1000 psychological magnet as the bulls and the bears struggle for clear directions amid mixed catalysts, as well as the cautious mood ahead of the top-tier data/events amid early Tuesday in Asia. That said, the Euro pair began the week on a negative note amid a broad US Dollar rebound and failed to cheer the upbeat EU data before reassessing the statistics and the European Central Bank (ECB) talks to prod the bears of late.

That said, the preliminary readings of Eurozone inflation, per the Harmonised Index of Consumer Prices (HICP), matched market forecasts with the 5.3% figure for July vs. a 5.5% rise seen in June. It’s worth noting that, the Core HICP inflation reprinted 5.5% YoY figure compared to 5.4% consensus. It’s worth noting, however, that the monthly HICP dropped to -0.1% for the said month compared to expected figures of 0.3% which matches the prior readings of June. Further, the Core HICP also marked -0.1% fall versus 0.4% prior.

That said, the first readings of the Eurozone Gross Domestic Product (GDP) for the second quarter (Q2) of 2023 rose to 0.30% QoQ versus 0.20% expected and -0.10% prior whereas the YoY GDP grew 0.6% compared to 0.4% market forecasts and 1.0% previous readings. Additionally, German Retail Sales for June improved with -1.6% YoY figures for June compared to -6.3% forecasts and -2.1% prior but the monthly figures dropped to -0.8% versus -0.2% expected and 1.9% previous readings.

It’s worth noting that ECB President Christine Lagarde defied recession woes during her comments on the weekend and favored the EUR/USD buyers while defending hawkish bias about the old continent’s central bank.

On the other hand, the US Dollar Index (DXY) managed to remain firmer on Monday, grinding higher towards 102.00 by the press time, despite witnessing mixed US data. That said, Dallas Fed Manufacturing Business Index improves to -20.0 for July from -23.2 prior versus -26.3 expected whereas Chicago PMI rose to 42.8 from 41.5 prior versus 43.0 market forecasts.

In doing so, the DXY ignores Friday’s softer prints of US inflation clues and the weekend comments from Minneapolis Fed President Neel Kashkari’s criticism of higher interest rates.

The US Dollar's strength could be linked to the fresh challenges to the market’s sentiment, emanating from China and the Federal Reserve (Fed) Loan Survey.

China's Commerce Ministry renews the Sino-US trade war fears by announcing measures to limit exports of some drones and drone-related equipment, starting from September 01, by citing the “national security and interests” late Monday suggests Reuters. It’s worth noting that China is a major global drone exporter and caters to various top-tier economies in that matter, including the US. As per the previous announcements from the US policymakers, China’s DJI provided more than 50% of the drones sold in the US, used mostly for public safety. Elsewhere, the Fed’s quarterly Senior Loan Officer Opinion Survey (SLOOS) US banks reported tighter credit standards and weaker loan demand during the second quarter (Q2 2023).

Amid these plays, S&P500 Futures remain sidelined after posting an upbeat start to the week while the United States Treasury bond yields pick up bids after declining in the last two consecutive days.

Looking forward, the final readings of July’s HCOB Manufacturing PMI for Germany and the US S&P Global Manufacturing PMI for the US will precede the US ISM Manufacturing PMI for the said month to direct intraday moves of the EUR/USD. Major attention, however, will be given to the employment clues ahead of Friday’s US Nonfarm Payrolls (NFP).

Technical analysis

EUR/USD struggles for clear directions between fortnight-old descending trend line and an upward-sloping support line from May 31, respectively near 1.1015 and 1.0970.