- Spain's annual inflation decline was more than expected in May; French and German numbers are due Wednesday.
- The US dollar posts mixed results amid risk aversion and renewed concerns about the debt ceiling.
- The EUR/USD rebounded after hitting fresh monthly lows, giving first signs of consolidation.
The EUR/USD rose less than 30 pips on Tuesday, but it was enough to mark the best day for the Euro in over a week. The pair staged a rebound after hitting fresh two-month lows at 1.0670, boosted by a decline of the US dollar against European currencies and the yen.
Data from Spain showed that the Harmonized Index of Consumer Prices declined 0.2% in May, with the annual rate falling from 3.8% to 2.9%, a larger-than-expected decline. The numbers weighed modestly on the Euro. What is positive news for the European Central Bank (ECB) could become negative news for the common currency. On Wednesday, inflation data from Germany and France are due. If the preliminary May estimates also show large declines in the annual rates, it could ease tightening expectations from the ECB.
The debt limit drama is back at the centre amid growing Republican opposition to the deal between US President Biden and Speaker Kevin McCarthy. The House Rules Committee is considering the bill and will set the parameters for a vote, hopefully on Wednesday. A delay could have dramatic consequences as the US could default on its debt in a week if Congress fails to deliver.
Regarding economic data, the May US Conference Board Consumer Confidence Index dropped to 102.3 but still shows a positive mood among consumers. The Dallas Fed Manufacturing Business Index unexpectedly declined from -23.4 to -29.1. On Wednesday, the Chicago PMI is due, and on Thursday, the ADP Employment Report. On Friday, the Nonfarm Payrolls report will be released.
EUR/USD short-term technical outlook
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The EUR/USD rebounded sharply from the 1.0670 area and retook the 1.0700 mark, the first positive sign for the Euro in many sessions. The daily close far from the bottom offers arguments for an extension of the recovery or for consolidation above 1.0700.
On the 4-hour chart, technical indicators favor the upside, with the Relative Strength Index (RSI) moving north, crossing 50, and Momentum breaking above midlines. Price is above the 20-period Simple Moving Average (SMA) that is about to turn north at 1.0720. The immediate support stands at 1.0715. Below, a consolidation under 1.0700 would point to renewed weakness, exposing 1.0670 (May 30 low). Below that, the next support stands at 1.0645. On the upside, a break above 1.0755/60 would add support to the Euro for an extension of the recovery. The next resistance stands at 1.0800.
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