EUR/USD stays directed towards 1.1500 on ECB rate hike concerns

• EUR/USD grinds higher around three-month top, awaits fresh directions after six-day uptrend.
• US NFP triggered the pullback from multi-day top but hawkish ECB policymakers keep buyers hopeful.
• Yields helped USD to pare recent losses on US jobs but equities didn’t drop much.
• Russia-Ukraine headlines, China’s return may entertain traders during a likely softer start to the week.

EUR/USD seesaws near 1.1455-60 during an inactive early Asian session on Monday, following the heaviest weekly jump since March 2021.

The major currency pair failed to portray the positive surprise from the US Bureau of Labor Statistics (BLS) the previous day as policymakers from the European Central Bank (ECB) bolster rate-hike expectations. It’s worth noting that the ECB marked a hawkish stand despite keeping the monetary policy unchanged the last week.

On Friday, US Nonfarm Payrolls (NFP) for January rose by 467K versus the median forecast for a 150K rise and 510K revised prior while the Unemployment Rate rose to 4.0% from 3.9% in December, compared to expectations for a no-change figure. It’s worth noting, however, that the U6 Underemployment Rate extended the south-run to 7.1% from 7.3% previous readouts. Also encouraging was Average Hourly Earnings that jumped strongly to 5.7% versus 4.9%. 

The jobs report was encouraging and triggered the much-needed bounce of the US Dollar Index (DXY). Even so, the DXY dropped the most since early November 2021 before snapping a five-day downturn to bounce off a three-week low the previous day whereas the US 10-year Treasury yields rallied to the fresh high since January 2020, with the latest addition being 8.9 basis points (bps) to 1.916%. It should be noted, however, that equities were surprisingly mixed.

Following the US employment data, European Central Bank governing council member Olli Rehn said that it would be logical for the ECB to hike its key interest rate at the latest by next year, in an interview with Helingin Sanomat. On the same line were the weekend comments from Dutch Central Bank President and a member of the European Central Bank's governing council, Klaas Knot as he expects the ECB to raise interest rates in Q4 2022.

It should be observed that Eurozone Retail Sales shrank 3.0% in December, per the latest details, due to Omicron-linked activity restrictions.

Amid these plays, ANZ said, “The reality is it could come a lot earlier and June is live for lift-off. We are expecting a major policy shift from the ECB when it meets next month.”

Moving on, a light calendar may offer a less active start to the week but comments from the ECB and the Fed policymakers, as and when arrive, will be crucial to watch. Additionally, China returns to trading after one-week-long holidays and missed the recently hawkish plays, which in turn may push them towards taking any impressive steps to defend the yen and the same could entertain momentum traders.

Technical analysis

A clear upside break of the 100-DMA, around 1.1425 by the press time, directs EUR/USD towards October 2021 bottom surrounding 1.1525.