EUR/USD retreats towards 1.0400 on fears of ECB action ahead of Fed Minutes, US NFP

  • EUR/USD struggles to defend corrective pullback from 13-day low.
  • Sour sentiment, fears that ECB braces for a move to restrict banks from cheering rate hike weigh on prices.
  • Economic slowdown fears join recently escalated Russia-Ukraine tussles to keep sellers hopeful.
  • US holidays may trouble momentum traders, Fed/ECB Minutes, US jobs will be crucial to watch.

EUR/USD struggles to defend intraday gains around 1.0430 as risk-aversion challenges the markets during Monday’s Asian session. Additionally, chatters surrounding the European Central Bank (ECB) appear to have exerted additional downside pressure on the major currency pair as traders await the key data/events from Eurozone and the US.

The Financial Times (FT) came out with the news suggesting that the European Central Bank (ECB) is looking at ways to stop banks from earning billions of euros of extra profit from the ultra-cheap lending scheme it launched during the pandemic once it starts to raise interest rates later this month.

Other than the fears of negative actions for the European banks, chatters surrounding the global economic slowdown and the ECB’s hawkish moves also play their roles to confuse the traders as the US holidays restrict the market moves.

On Friday, the annualized figures of the Eurozone’s key inflation gauge, namely the Harmonised Index of Consumer Prices (HICP), surged by 8.6% in June compared to the 8.4% marked expectations and previous reading of 8.1%. The record inflation data fanned expectations of a 0.5% ECB rate hike during July. However, downbeat US PMIs appeared to have propelled recession risks and drowned the EUR/USD pair the previous day.

That said, the US ISM Manufacturing PMI for June slumped to the lowest levels in two years, to 53.0 versus 54.9 expected and 56.1 prior. The details suggested the Employment Index declined to 47.3 from 49.6 and New Orders Index fell to 49.2 from 55.1. Finally, Prices Paid Index dropped to 78.5 from 82.2, versus market forecasts of 81.0. It should be noted that the final readings of the S&P Global Manufacturing PMI for June dropped to the lowest level since July 2020, to 52.7 versus the flash estimate of 52.4 and 57 in May.

Against this backdrop, the US 10-year Treasury yields marked the biggest weekly fall since February while Wall Street benchmarks struggled for clear directions after Friday’s surprise gains. Further, S&P 500 Futures drop 0.65% to portray the risk-off mood by the press time.

Moving on, EUR/USD traders may struggle for clear directions amid the US holiday. However, German trade numbers for May can entertain intraday players. However, major attention will be given to Wednesday’s Federal Open Market Committee (FOMC) Minutes, Thursday’s ECB Minutes and the US Jobs report for June, up for publishing on Friday.

Technical analysis

Even if EUR/USD remains around a two-week low, flashed on Friday, its moves from May 13 appear not in favor of the sellers. That said, the higher low in the prices has gained support from the higher low in the RSI (14), which in turn suggests a gradual reduction in a bearish bias.

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