EUR/USD: Daily pullback meets initial contention near 1.0760

EUR/USD loses further ground and slips back to the area of monthly lows around 1.0760 on Tuesday.

EUR/USD pokes with May lows near 1.0760

EUR/USD maintains its bearish tone on Tuesday, seeing its decline accelerate to the 1.0760 area as the dollar continues to face upward pressure, while unease over the US debt ceiling continues to weigh on sentiment.

Meanwhile, talks over the US debt ceiling are expected to continue to drive sentiment in global markets in the near term, while speculation of further rate hikes by the ECB at its June and July meetings, and likely in September, continues to grow.

In the US, advanced Manufacturing PMI is seen deflating to 48.5 in May and the Services PMI is expected to improve to 55.1.

Later in the session, US New Home Sales are also due.

What to look for around EUR

EUR/USD loses the grip and flirts with the monthly lows around 1.0760 on Tuesday.

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, EMU Advanced Manufacturing/Services PMI (Tuesday) – Germany IFO Business Climate (Wednesday) – 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 losing 0.31% at 1.0778 and faces immediate contention at 1.0759 (monthly low May 19) seconded by 1.0712 (low March 24) and finally 1.0516 (low March 15). On the upside, a break above 1.0872 (55-day SMA) would target 1.1000 (round level) en route to 1.1095 (2023 high April 26).