EUR/USD: The sell-off runs out of steam in the 1.0640 region
- EUR/USD bounces off 2-day lows near 1.0640.
- The greenback remains bid across the board despite lower yields.
- Markets’ attention now shifts to the release of the FOMC Minutes.
The sentiment around the single currency remains sour and prompts EUR/USD to keep the trade well south of the 1.0700 yardstick on Wednesday.
EUR/USD looks offered ahead of the FOMC
EUR/USD corrects lower following a failed attempt to extend the daily range further north of the 1.0750 zone, sparking a subsequent correction of nearly one big figure to the vicinity of 1.0640.
The renewed strength in the dollar sponsored the move lower in spot, which it has also met some help from lower yields on both sides of the ocean.
No news from earlier comments from ECB-speakers, as practically all of them joined the summer rate hike narrative in place in the last couple of weeks.
In the euro calendar, earlier results saw the German GDP Growth Rate expand 3.8% YoY in Q1 and the Consumer Confidence tracked by GfK improve marginally to -26 for the month of June. In France, the Consumer Confidence came in short of expectations in May at 86 (from April’s 87).
Across the pond, MBA’s Mortgage Applications contracted 1.2% in the week to May 20 and headline Durable Goods Orders came in short of expectations after expanding 0.4% MoM in April.
Next on tap will be the publication of the FOMC Minutes of the May meeting.
What to look for around EUR
The moderate rebound in the dollar puts the recent sharp upside in EUR/USD to the test, sparking a marked drop to the 1.0640 region so far.
Despite the pair’s recent upside impulse, the broader outlook for the single currency remains in the negative territory for the time being. As usual, price action in spot should reflect dollar dynamics, geopolitical concerns and the Fed-ECB divergence.
Occasional pockets of strength in the single currency, however, should appear reinforced by speculation the ECB could raise rates at some point in the summer, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.
Key events in the euro area this week: Germany Final Q1 GDP, GfK Consumer Confidence, ECB Lagarde (Wednesday).
Eminent issues on the back boiler: Speculation of the start of the hiking cycle by the ECB as soon as this summer. Asymmetric economic recovery post-pandemic in the euro area. Impact of the war in Ukraine on the region’s growth prospects.
EUR/USD levels to watch
So far, spot is losing 0.60 at 1.0667 and a breach of 1.0459 (low May 18) would target 1.0348 (2022 low May 13) en route to 1.0340 (2017 low January 3 2017). On the other hand, the next up barrier aligns at 1.0748 (monthly high May 24) followed by 1.0779 (55-day SMA) and finally 1.0936 (weekly high April 21).