EUR/USD: Euro bulls attack 1.1010 hurdle as US Dollar slides on downbeat inflation expectations

• EUR/USD remains firmer at the highest levels in 2.5 weeks.
• Risk-on mood, downbeat US NFP and inflation expectations weigh on Euro price.
• Mostly hawkish Fed talks, downbeat EU data put a floor under EUR/USD.
• Risk catalysts, German ZEW Sentiment data eyed for clear directions.

EUR/USD bulls take a breather at the highest levels in more than two weeks around 1.1000 amid early Tuesday morning in Asia. In doing so, the Euro pair cheers the broad US Dollar weakness, as well as the risk-on mood, despite hawkish comments from the Federal Reserve (Fed) officials.

That said, Fed officials have been hawkish off late but fail to gain support from the US inflation expectations, especially lack of acceptance amid Friday’s downbeat US jobs report.

Recently, San Francisco Fed President Mary Daly said, "We're likely to need a couple more rate hikes over the course of this year to really bring inflation sustainably back to the Fed's 2% goal." On the same line, Cleveland Fed President Loretta Mester also said that the Fed will need to tighten the monetary policy "somewhat further" to lower inflation. Furthermore, Federal Reserve Vice Chair for Supervision Michael Barr said, "We are quite attentive to bringing inflation down to target." 

The latest US employment report for June marked a negative surprise and offered a big blow to the US Dollar, making it post the biggest daily loss in three weeks. However, Monday’s downbeat prints of China inflation data flagged fears of deflation in the world’s biggest industrial player, which in turn allowed the US Dollar to lick its wounds.

That said, the headline US Nonfarm Payrolls (NFP) marked the first below-expectations print in 15 months while falling to 209K, versus 225K market forecasts and 309K prior (revised), whereas the Unemployment Rate matches analysts’ estimations of 3.6% compared to 3.7% prior. On the other hand, China’s Consumer Price Index (CPI) eased to 0.0% YoY in June versus 0.2% prior while the Producer Price Index (PPI) slipped beneath the -4.6% yearly prior marked in May to -5.4%.

On the other hand, the Eurozone Sentix Investor Confidence declined to -22.5 for July from -17 in June. Adding to the pessimism were comments from Sentix managing director Manfred Huebner who said, “There is also nothing positive to report in terms of forward-looking expectations.”  Sentix’s Huebner also mentioned that the Investor Confidence Index for Germany fell 7.3 points to -28.4.

Talking about the European Central Bank (ECB) talks, Governing Council member Francois Villeroy de Galhau said, “Eurozone rates will soon reach their high point, but it will be more of a high plateau than a peak.” On the same line, Governing Council member and Bank of Portugal Governor, Mario Centeno, said that the inflation is coming down faster than the way up. The policymaker also added that they need to fuel this process and be very confident we can make it.

Wall Street closed positive while the US Treasury bond yields dropped. That said, the benchmark US 10-year Treasury bond yields printed the first daily loss in July the previous day whereas the two-year counterpart declined for the second consecutive day, to respectively near 4.00% and 4.86%

Moving on, DXY traders will pay attention to the risk catalysts ahead of Wednesday’s US inflation numbers for clear directions.

Technical analysis

A daily closing beyond a two-month-old descending resistance line, now immediate support near 1.0980, enables EUR/USD to remain firmer. However, the previous monthly high of near 1.1010 prods the Euro bulls.