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Title: EUR/USD stays defensive below 1.0200 as hawkish Fed bets propel DXY ahead of US inflation

August 8, 2022 12:01 AM ET

By: AnalysisWatch

After a recent weak performance, the EUR/USD pair is treading water as the bears struggle to justify their strength in the face of a sluggish start to the key week, fluctuating around 1.0180-85 early Monday morning in Europe.

The U.S. jobs report for July and Sino- U.S. tensions over Taiwan are the focus of attention when it comes to the U.S. dollar's strongly bullish catalyst. The nonfarm payrolls (NFP) rose to 528,000 (expected 250,000, revised 398,000) and the unemployment rate fell to 3.5% (expected 3.6% and earlier readings). Following the data, San Francisco Fed President Mary Daly said over the weekend that the Fed is far from done fighting inflation.

On the other hand, Reuters news agency reported that China plans to hold "regular" military exercises east of the Taiwan Strait centerline. The Dragon Nation's Foreign Ministry announced Friday that it would sanction U.S. House of Representatives Speaker Nancy Pelosi over the Taiwan visit. On the other hand, Taiwan's Defense Ministry reported that 66 Chinese aircraft conducted activities in the Taiwan Strait at 5 p.m. local time on Sunday. In addition, U.S. Secretary of State Anthony Blinken called China's provocative actions a significant escalation.

In this environment, 10-year U.S. Treasury bond yields eased back to near 2.82% after rising 14 basis points (bps) to 2.83% the previous day. In addition, S& P 500 futures posted slight losses and Asia-Pacific equities remained under pressure.

In the week ahead, a sparse schedule could limit short-term EUR/USD moves ahead of key U.S. inflation data due for release on Wednesday. It will also be crucial to see how Italian politicians shape national policy ahead of the September elections.

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