EUR / USD falls back below 1.1300 and returns all gains driven by the NFP

• EUR / USD has retraced below 1.1300 and is now below levels pevios to the US NFP data from last Friday.
• Schnabel’s optimistic remarks from the ECB, following last Friday’s hot eurozone inflation, have been ignored.
• Currency markets continue to focus primarily on US data and the Fed.

The EUR/USD It has returned this Monday slightly below its levels prior to the data of the US labor market, where it was trading last Friday, and has fallen below 1.1300. To sum it up, the latest US labor market report revealed weaker-than-expected labor earnings in December, but with higher wage growth in December. In the wake of the report, and despite the almost unanimous interpretation by analysts that it supports the Fed’s optimistic stance that accelerated monetary tightening in 2022 is justified, EUR / USD broke a short-term pennant pattern higher and hit 1.1360 on Friday. At time of writing, the pa has set a daily low at 1.1285, but is recovering towards 1.1320, still negative on the day.

While technical buying and profit taking around the dollar was the cause behind the pair’s rebound on Friday, analysts at the time warned that the move went against the latest fundamental events. In fact, sharp rise in US government bond yields last week points to a stronger dollar, not weaker. EUR / USD on Monday appears to be corroborating that view. Strategists warn that the recovery of the dollar against the euro could continue this week amid several scheduled speeches by the Fed that will likely support the optimism of last week’s minutes, as well as December consumer price inflation. .

Before the release of the CPI report on Wednesday, which is expected to show that inflationary pressures continued to heat up in late 2022, pushing headline CPI above 7.0% yoy, analysts have been anticipating the Fed’s tightening bets. The December labor market report “was consistent with the Fed’s evolving view that the labor market is approaching or already in peak employment with wage pressures increasing, “said analysts at NatWest Markets. “This should increase speculation about a rate hike in March, and we have withdrawn our expectation that the Fed will take off in March instead of June,” the bank’s analysts added, while Goldman Sachs announced that they now expect four 25bps rate hikes in 2022 versus its previous forecast of three.

With the focus mainly on US data and the Fed this week, currency markets appear to be ignoring developments that increasingly point to an increasingly optimistic ECB. In the wake of hotter-than-expected eurozone CPI inflation figures last Friday, influential ECB Governor Isabel Schnabel commented over the weekend on some of the rhetoric that until very recently it was only defended by hawks. of the central bank. Schnabel said rising energy prices may force the ECB to stop “looking through” high inflation and instead act to moderate it., particularly if the green transition turns out to be more inflationary than expected. On the other hand, the EU Sentix index for January was released on Monday and showed a surprising improvement, indicating expectations among eurozone investors that Ómicron will not cause lasting economic damage.