EUR/USD came under pressure after failing to hold above its 10-day moving average, with the latest European inflation data contributing to bearish sentiment. June inflation readings across Germany, France, Ireland, and Italy all came in below expectations, largely driven by lower energy prices, raising the possibility that disinflation may be taking hold in the euro zone. The softer inflation figures have prompted investors to reassess the likelihood of further ECB rate hikes this year. This shift in expectations was reflected in markets, with German 2-year yields falling toward key support at 2.50% and Euribor futures climbing to 2.5-month highs, signaling that traders now anticipate a less hawkish ECB stance. These expectations were further reinforced by comments from ECB President Christine Lagarde last week, which were also interpreted as less hawkish.

Meanwhile, the dollar's yield advantage over the euro widened as U.S.-German 2-year yield spreads expanded following the data, adding further downward pressure on EUR/USD. Should these spreads continue to widen, bearish pressure on the pair could intensify.

Looking ahead, U.S. employment data represents a key risk event for EUR/USD bulls. Strong job growth figures would likely boost the dollar and U.S. yields by reinforcing expectations of a hawkish Fed, widening yield spreads further in the dollar's favor and potentially driving EUR/USD lower.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)