EUR/USD treads water just above 1.0700 ahead of data, ECB
- EUR/USD looks direction in the low-1.0700s on Tuesday.
- ECB will release its Consumer Expectation Survey later.
- ECB’s Knot favoured further tightening until inflation reaches target.
The single currency alternates gains with losses vs. the greenback and motivates EUR/USD to gyrate without a clear direction just above the 1.0700 yardstick on Tuesday.
EUR/USD focused on data and ECB
EUR/USD continues to navigate on a vacillating note amidst the equally inconclusive price action surrounding the dollar and the absence of strong catalysts in the macro scenario.
On the latter, unchanged expectations continue to see the Fed pausing its hiking cycle as soon as at the June gathering, while further tightening remains well in place for the ECB at the June and July meetings.
Still around the ECB, Board member K. Knot favoured extending the rate hikes until inflation hits the bank’s target. He acknowledged that inflation remains too high, although the worst now appears to be in the past. He added that he still needs to see the full effect of ECB tightening at the time when second-round effects appear to have started to show up.
Data-wise in the euro docket, the HCOB Construction PMI in Germany improved to 43.9 in May, while Retail Sales in the euro area are due next along with the ECB’s Consumer Expectation Survey.
Across the pond, the IBD/TIPP Economic Optimism Index will be the only release later in the NA session.
What to look for around EUR
EUR/USD hovers around the 1.0700 region amidst the generalized lack of direction in the global markets on Tuesday.
In the meantime, the pair’s price action is expected to closely mirror the behaviour of the US Dollar and will likely be impacted by any differences in approach between the Fed and the ECB with regards to their plans for adjusting interest rates.
Moving forward, hawkish ECB speak continues to favour further rate hikes, although this view appears to be in contrast to some loss of momentum in economic fundamentals in the region.
Key events in the euro area this week: Germany Construction PMI/Factory Orders, EMU Retail Sales (Tuesday) – Germany Industrial Production (Wednesday) - EMU Flash GDP Growth Rate (Thursday).
Eminent issues on the back boiler: Continuation of the ECB hiking cycle in June and July (and September?). Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.
EUR/USD levels to watch
So far, the pair is losing 0.03% at 1.0708 and faces initial support at 1.0635 (monthly low May 31) seconded by 1.0516 (low March 15) and finally 1.0481 (2023 low January 6). On the upside, the surpass of 1.0779 (weekly high June 2) would target 1.0809 (100-day SMA) en route to 1.0884 (55-day SMA).