Ella 
EUR/USD remained on the defensive for the second day in a row on Friday, trading below the mid-1.0800 200 hourly simple moving average (SMA) in Asian trading. Meanwhile, the fundamental backdrop favors bearish traders, supporting the prospect of a sharp pullback overnight from around the 2-1/2-week top near 1.0945 hit on Wednesday.
EUR/USD was weighed down by cautious comments from European Central Bank (ECB) officials on Thursday, raising expectations that the ECB will keep interest rates unchanged at its September policy meeting. In fact, Isabel Schnabel, considered one of the most hawkish members of the ECB, noted that growth in the euro zone has been weaker than expected, but that doesn’t necessarily mean more rate hikes aren’t needed . In addition, European Central Bank Vice President Luis de Guindos (Luis de Guindos) said that the ECB’s interest rate hike cycle is nearing the end, but whether to further tighten monetary policy at the next meeting in two weeks remains to be seen.
It came after euro zone data showed headline price growth slowed in August, boosting expectations that the European Central Bank will keep interest rates on hold. According to official data released by Eurostat, the annual rate of the Harmonized Consumer Price Index in the euro zone held steady at 5.3% in August, compared with expectations for a 5.1% increase. However, the annual rate of the Harmonized Core Consumer Price Index fell to 5.3% in August from 5.5% in the previous month, in line with consensus expectations. In contrast, U.S. inflation, as measured by changes in the personal consumption expenditures (PCE) price index, rose to 3.3% in July from 3% previously.
Elsewhere, the core PCE price index, the Fed’s preferred measure of inflation, rose at a 4.2% annualized rate, slightly up from 4.1% in June. Other details in the report showed personal income rose 0.2% and personal spending rose 0.8% on month, the strongest reading since January. The data opened up the possibility of the Federal Reserve raising interest rates by 25 basis points before the end of the year, which helped U.S. Treasury yields fall from multi-year highs. This in turn boosted the greenback, supporting the prospect of further depreciation in the EUR/USD pair.
That said, other data released earlier this week, ADP employment change and a second estimate of U.S. second-quarter gross domestic product, suggested that the U.S. economy’s resilience had begun to wane. This could force the Fed to soften its hawkish stance, thus discouraging aggressive betting by dollar bulls and limiting EUR/USD downside. Market participants also seemed reluctant, preferring to stay on the sidelines ahead of the closely watched monthly U.S. jobs data. The much-anticipated non-farm payrolls report will be released later in the North American morning session, providing a clear boost to EUR/USD.
