EUR/USD pauses below 1.1600 as soft US labor data lifts interest rate cut hopes, Eurozone outlook weakens

• The EUR/USD holds steady near 1.1600 on Monday, consolidating Friday's strong post-NFP gains.
• Sentiment in the Eurozone deteriorates, as the Sentix Investor Confidence Index drops to -3.7 in August, from 4.5 in July.
• US Factory Orders fell 4.8% in June, reversing May's strong 8.3% gain and signaling a slowdown in manufacturing activity.

The Euro (EUR) holds firm against the US Dollar (USD) on Monday, consolidating Friday's sharp gains after a weaker-than-expected US Nonfarm Payrolls (NFP) report fueled expectations that the Federal Reserve (Fed) will cut interest rates as soon as September. However, sentiment remains fragile and cautious around the recently announced trade framework deal between the United States (US) and the European Union (EU), which has drawn sharp criticism from several European leaders. The deal is widely viewed as one-sided and favorable to the US, raising concerns over its long-term implications for the Eurozone's competitiveness.

At the time of writing, the EUR/USD pair is trading near 1.1557 during American hours, with price action largely rangebound as the pair struggles to break above the 1.1600 psychological barrier, amid cautious sentiment and a lack of fresh macroeconomic catalysts.

Adding to the cautious tone, the Sentix Investor Confidence Index for August showed a sharp drop in Eurozone sentiment. The data provider said its weekly survey of thousands of investors in more than 20 countries showed that the pact was a "deal that dampens the mood", with Trump and the US viewed as "winners" at the expense of the Eurozone.

The headline index fell to -3.7 from 4.5 in July, its first negative reading since March. Both the current situation and expectations components declined sharply, with analysts pointing to tensions over the US-EU tariff framework as a major factor behind the gloomier outlook. "The tariff agreement is proving to be a real mood killer," said Sentix managing director Manfred Huebner in a statement.

The US and EU struck a framework trade agreement on July 27, which will impose a 15% import tariff on most EU goods starting August 7, up sharply from the current average of 4.8%. While the agreement averted a more severe disruption, it avoided the 30% import duty previously threatened by US President Donald Trump under a self-imposed August 1 deadline.

On the US side, apart from the disappointing labor market data on Friday, the latest Factory Orders report added to the cautious tone surrounding the US economic outlook. According to data released by the US Census Bureau, Factory Orders slumped 4.8% MoM in June, following an upwardly revised 8.3% increase in May and beating expectations of a deeper 4.9% decline.

Looking ahead, Friday's weaker-than-expected Nonfarm Payrolls (NFP) report has significantly shifted market expectations, with traders now pricing in a 77% probability of a 25 basis point rate cut at the Federal Reserve's next policy meeting in September. The dovish repricing is weighing heavily on the US Dollar and could keep the Euro supported in the near term.