EURUSD stays defensive above 0.9900 despite the bearish gap, US inflation eyed

• EURUSD grinds lower following a week-start gap to the south, pares the biggest daily gains since late 2015.
• Market sentiment sours amid weekend headlines surrounding Russia, coronavirus.
• US jobs report, China’s covid-control policy and hawkish ECBSpeak helped buyers previously.
• US inflation data will be the key but risk catalysts can entertain traders as G20 begins.

EURUSD bears retake control during early Monday, after posting the biggest daily jump since December 2015, as the risk profile deteriorates. That said, the major currency pair began the week’s trading with a downside gap before taking rounds to 0.9920-25 by the press time.

Global markets turned risk-averse as traders began the week’s work with fresh fears of China’s covid controls, as well as geopolitical fears surrounding Russia. Also likely to have tested the traders are mixed concerns over the Fed’s next move.

Reuters cited China National Health Commission as saying during the weekend that China will persevere with its "dynamic-clearing" approach to COVID-19 cases as soon as they emerge, health officials said on Saturday. The news also added that measures must be implemented more precisely and meet the needs of vulnerable people.

On the same line were chatters that China President Xi Jinping warned Russian President Vladimir Putin over the usage of nuclear technology in the war against Ukraine. Furthermore, the news from the Wall Street Journal (WSJ) suggesting that a senior White House Official is involved in undisclosed talks with top Putin aides also tried to please the EURUSD bears.

It should be noted that expectations of witnessing easy covid controls in China joined mixed US job numbers, Fedspeak and hawkish comments from the European Central Bank (ECB) officials favored the EURUSD bulls the previous day.

''An unverified social media post last week, and a report authorities were working on plans to scrap a system that penalizes airlines for bringing virus cases into the country, boosted investor hopes that China’s pandemic policy may soon be loosened,'' Bloomberg reported. 

The US Nonfarm Payrolls (NFP) for October arrived at 261K versus 200K expected and 315K upwardly revised prior. However, the Unemployment Rate surprised markets by rising to 3.7% compared to 3.5% previous readings and 3.6% market forecasts. Following the data, Richmond Fed President Thomas Barkin said that the US labor market was still tight while also mentioning, “Not sure I know what we'll do in December.” Boston Federal Reserve President Susan Collins said on Friday that it is time for the Fed to shift its focus from the size of rate hikes to the "ultimate "destination," as reported by Reuters.

On the other hand, European Central Bank (ECB) President Christine Lagarde reiterated on Friday, "We have to raise rates to levels that will deliver our 2% medium-term inflation target."

Against this backdrop, Wall Street benchmarks closed positive and so did the US Treasury yields. However, the US Dollar Index (DXY) was down and propelled prices of commodities and Antipodeans. It’s worth noting that S&P 500 Futures drop 0.75% intraday at the latest.

Looking forward, Fedspeak and the second-tier data from the US and Eurozone may entertain EURUSD traders ahead of Thursday’s US Consumer Price Index (CPI). Also important to watch will be the updates from the Group of 20 nations’ meeting in Bali, not to forget the risk catalysts mentioned above.

Overall, a shift in the market’s view over the Fed’s next move seemed to have teased the EURUSD bears but the bulls aren’t off the table.

Technical analysis

EURUSD bulls must provide a daily closing beyond the 100-DMA hurdle surrounding 1.0040 to retake control.