EUR/USD drops towards 1.1000 as ECB hawks retreat, First Bank roils the mood, US NFP, Fed eyed

• EUR/USD pares recent gains at 13-month high, remains pressured during three-day downtrend.
• Downbeat EU data contrasts with firmer inflation signals from US to prod Euro pair buyers.
• ECB and Fed are both likely to announce 0.25% rate hike this week but signals for future moves are the key.
• US ISM PMIs, NFP and First Republic headlines are extra catalysts to watch for clear directions.

EUR/USD remains depressed for the third consecutive day while staying around the highest levels since April 2022, mildly offered near 1.1010 during Monday’s Asian session. In doing so, the Euro pair bears the burden of the recently easing hawkish bets on the European Central Bank (ECB), as well as the strong inflation signals from the US. Also challenging the pair buyers at the multi-month high are the economic slowdown fears and the First Republic woes.

The Federal Deposit Insurance Corporation (FDIC) calls in bids for the troubled US bank after an exodus of withdrawals caused First Republic's share price to tank. That said, multiple top-tier private organizations, including JP Morgan, bid for the bank’s takeover. The results are up for release and can give only knee-jerk optimism as an immediate defense of the bank by a private player isn’t a solution to the broad banking problems. On the contrary, the same raises fears of such actions for the larger public banks in the future and hence can keep the risk-off mood intact.

Elsewhere, ECB hawks retreat amid downbeat EU and German statistics released in the last week. On Friday, preliminary readings of Germany’s inflation for April, as per the Harmonized Index of Consumer Prices (HICP) index, eased to 7.6% YoY versus 7.8% expected and prior. Further, the nation’s inflation per the Consumer Price Index (CPI) also softened to 7.2% YoY compared to 7.3% market consensus and 7.4% previous readings. Further, the first readings of the Eurozone Gross Domestic Product (GDP) for the first quarter (Q1) of 2023 came in mixed for QoQ and YoY. That said, the Eurozone Q1 GDP improved to 0.1% QoQ from 0.0% prior, versus 0.2% expected, whereas the yearly growth eased to 1.3% from 1.4% market forecasts and 1.8% prior. On the same line, Germany’s Q1 GDP improved on a quarterly basis, to 0.0% from -0.4% prior and 0.2% analysts’ estimations, whereas the yearly figures dropped to -0.1% from 0.9% previous readings and 0.3% market forecasts.

Alternatively, initial estimations of the US Gross Domestic Product (GDP) for the first quarter (Q1) of 2023, also known as Advance readings, marked mixed outcomes. That said, the headline US GDP Annualized eased to 1.1% from 2.0% expected and 2.6% prior but the GDP Price Index inched higher to 4.0% on an annualized basis from 3.9% prior and 3.8% market consensus. Further, the Fed’s preferred inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index, for March matched 0.3% market forecasts and prior to MoM but rose to 4.6% from 4.5% expected on YoY, with an upwardly revised previous reading of 4.7%. On the same line, the US Employment Cost Index also increased by 1.2% in Q1 2023, versus the 1% increase marked previously.

Amid these plays, the CME Group FedWatch Tool suggests higher odds of the Fed’s 0.25% rate hike in May and June, as well as a reduction in the market’s bets on the September rate cut from the US central bank. With this, S&P 500 Futures print mild losses even as Wall Street closed positive and the yields eased.

Moving on, holidays in multiple European markets on Monday may restrict EUR/USD moves even as the US ISM Manufacturing PMI is up for release. However, major attention will be given to Wednesday’s Fed meeting, Thursday’s ECB monetary policy announcements and Friday’s US jobs report for April. Overall, bulls appear running out of steam but bears have a tough task retaking control.

Technical analysis

The overbought RSI (14) line joins the EUR/USD pair’s repeated failure to provide a daily closing beyond 1.1050 to lure the sellers. However, an upward-sloping trend line from early April, close to 1.0980, holds the gate for sellers.