- EUR / USD remains under pressure after clicking on a two-day uptrend, consolidates previous weekly gains.
- DXY is probing the pullback from the two-month high as traders reassess inflation fears following Friday’s US PCE data.
- The woes of Covid in Australia, Japan and the UK have also put a safe haven supply under the US dollar.
- Fedspeak can entertain the markets ahead of Friday’s US NFP.
EUR / USD does not extend the rally from the previous week, down 0.11% intraday to around 1.1920, ahead of Monday’s European session. The sluggish market is failing to tame pair sellers as new fears of inflation and coronavirus (COVID-19) are boosting demand for the US dollar, due to its risk-to-safety allure.
That said, the US Dollar Index (DXY) is showing the strongest intraday gains in more than a week, up 0.07% on a day to around 91.88, at press time.
The US personal consumption expenditure (PCE) price index, released on Friday, appears to be the main catalyst for the greenback’s rally movements. The Fed’s preferred inflation indicator hit its highest level in nearly three decades with 3.4% year-on-year figures in May and has probed the Fed’s repeated and sustained efforts to tame inflationary fears and the chatter about rate hikes, as well as the decrease.
Following the release of the US Core PCE, Minneapolis Federal Reserve Chairman Neel Kashkari said: “Expecting some of the very high inflation readings to return to normal. On the contrary, Boston Federal Reserve Chairman Eric Rosengren said on Friday they had to think about some of the side effects of a long-term low interest rate strategy, as reported by Reuters.
In addition to fears of a normalization of Fed policy, new covid woes from Australia, Japan and the UK are also favoring the US dollar and weighing on EUR / USD prices. As Sydney, Australia faces stricter and more extensive activity restrictions following the rise in viral infections and strain cases, German Chancellor Angela Merkel is pushing to ban British travelers over fears of the Delta plus variant. Elsewhere, hosting the Olympics and Paralympics in Japan is also widely criticized as the country battles another wave of the pandemic.
It should be noted that a light schedule and thin power supplies also helped expand the Friday night pullback market.
Continuing, the justification by Fed policymakers of inflation fears in the United States will be the key guideline for EUR / USD prices ahead of Friday’s key jobs report. If the Fedspeak eases its rejection of the reflation mandate, the quote could extend the latest weakness to the monthly low, also the lowest since early April.
Multiple failures to break through the 200-day EMA join Friday’s bearish candlestick formation, namely the Tombstone Doji, to keep EUR / USD sellers in hopes of refreshing monthly low.