EUR/USD steadies below 1.1000 as Fed officials welcome US inflation data, ECB signals uncertain times

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• EUR/USD stabilizes after reversing from two-week high, prods two-day uptrend.
• US inflation data came in mixed for July but Fed policymakers throw advance party.
• ECB Economic Bulletin cites lack of clarity with downbeat tone.
• More clues of US inflation eyed for clear directions of Euro.

EUR/USD lacks clear directions around 1.0980-85 during early Friday, after a volatile Thursday that initially saw a fresh two-week high before marking a daily closing with minor gains. It’s worth noting that the US Dollar’s upbeat closing, mainly due to the firmer yields, fails to lure the Euro bears amid indecision about the Federal Reserve’s (Fed) next step, as well as due to the mixed European Central Bank (ECB) concerns.

On Thursday, the European Central Bank’s (ECB) monthly Economic Bulletin unveiled highly uncertain outlook for the bloc’s economic growth and inflation. The publication also mentioned the continuous decline in the “too high inflation”, as well as deterioration in the near-term economic outlook.

On the other hand, the US Consumer Price Index (CPI) for July matched market forecasts to reprint 0.2% MoM figures. However, the yearly CPI improved slower-than-expected 3.3% to 3.2% YoY for the said month, versus 3.0% previous readings, marking the first acceleration in the annual rate in 13 months.  Furthermore, the CPI ex Food & Energy, also known as the Core CPI, also flashed an unchanged 0.20% MoM figures while meeting market consensus but eased to 4.7% YoY compared to 4.8% marked in June and the expected numbers.

It’s worth noting that the US Initial Jobless Claims rose to 248K for the week ended on August 04 versus 230K expected and 227K prior while Continuing Jobless Claims softened to 1.684M from 1.692M (revised), versus 1.71M market forecasts.

Overall, the US data were downbeat and hence a slew of policymakers from the Federal Reserve (Fed) crossed wires while conveying the US central bank’s hard-earned victory on inflation. Even so, their tones appeared less convincing for doves and joined the risk-negative concerns about China to fuel the US Treasury bond yields.

Among them, Philadelphia Federal Reserve Bank President Patrick Harker raised a toast to the Fed’s progress in its fight against inflation and was joined by Boston Federal Reserve President Susan Collins and Atlanta Federal Reserve Bank President Raphael Bostic to cheer the softer US CPI. However, San Francisco Fed President Daly turned down the cheers for their victory while saying, “There’s still more work to do.” 

A spokesperson of the European (EU) Commission said, via email cited by Reuters, that the bloc takes note of the US Executive Order banning outbound investment (relating to China technology companies). The policymaker also mentioned being in close contact with the US administration and showed readiness to cooperate on the topic. Prior to that, the Financial Times (FT) came out with the news suggesting UK Prime Minister (PM) Rishi Sunak’s readiness to follow the US in restricting investment to China technology companies.

Hence, the risk of witnessing more geopolitical tussles between the West and China weighed on the sentiment. Further, the chatters about slower economic growth in top-tier economies and recession woes in China, Germany and the UK pushed back the US Dollar bears as well.

Looking ahead, a light calendar in Europe keeps EUR/USD at the mercy of the US data, which in turn emphasizes the US Producer Price Index (PPI) for July will precede the first readings of the University of Michigan’s (UoM) Consumer Sentiment Index (CSI) for August. Also important will be the UoM 5-Year Consumer Inflation Expectations for the said month. Above all, the central bank updates and China news will be crucial to determine the quote’s further direction.

Technical analysis

A daily closing beyond the three-week-old previous resistance line, now immediate support near 1.0950, keeps the EUR/USD buyers hopeful despite the latest inaction. However, the recovery moves need validation from the 21-DMA hurdle of around 1.1055.