EUR/USD battles to keep the trade above the 1.0700 mark, looks at US PCE

  • EUR/USD attempts a mild bounce from recent lows near 1.0700.
  • There seems to be dome renewed optimism around the US debt ceiling.
  • Markets’ attention will be on the US PCE/Core PCE in April.

The single currency manages to regain some composure and encourages EUR/USD to put some distance from Thursday’s multi-week lows near the 1.0700 region.

EUR/USD looks at US docket, debt ceiling

EUR/USD trades with humble gains in the wake of the opening bell in Euroland at the end of the week against the backdrop of some selling pressure in the dollar and fresh optimism around the US debt ceiling.

On the latter, market participants seem to favour the risk complex on Friday after Republican lawmakers and President Biden appeared to be getting closer to a deal to reduce spending and raise the debt ceiling before a potential default that could have a devastating effect on the economy and global markets. Indeed, negotiators are looking at a deal that would limit spending on most things while simultaneously raising the government's $31.4 trillion debt ceiling for two years.

In the euro, Consumer Confidence in France held steady at 83 in May, while the same gauge is due later in Italy.

In the US, the publication of inflation figures gauged by the PCE and Core PCE will be in the centre of the debate later in the NA session. In addition, Trade Balance results, Personal Income/Spending, Durable Goods Orders and the final print of the Michigan Consumer Sentiment for the current month area all due.

What to look for around EUR

EUR/USD’s sell-off seems to have run out of steam just ahead of the key 1.0700 zone so far this week.

The movement of the euro's value 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 continue to favour further rate hikes, although this view appears in contrast to some loss of momentum in economic fundamentals in the region.

Key events in the euro area this week: Germany Final Q1 GDP Growth Rate, GfK Consumer Confidence (Thursday) – Italy, France Consumer Confidence (Friday).

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 gaining 0.15% at 1.0741 and a break above 1.0880 (55-day SMA) would target 1.1000 (round level) en route to 1.1095 (2023 high April 26). On the other hand, immediate contention aligns at 1.0707 (monthly low May 25) seconded by 1.0516 (low March 15) and finally 1.0481 (2023 low January 6).

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