- EUR/USD pares the biggest daily loss in a week amid cautious markets.
- Comparatively upbeat US PMIs jostle with the hawkish ECB talks and pre-event anxiety to prod Euro traders.
- US policymakers’ inability to strike debt ceiling deal weighs on sentiment, EUR/USD price.
- Fed Minutes, headlines about US default will be the key to watch for immediate directions.
EUR/USD bears take a breather around 1.0770 during early Wednesday in Asia, after posting the biggest daily loss in a week. That said, escalating fears of the US default, hawkish Fed bets and anxiety ahead of the Fed Minutes seem to contribute the maximum in the latest sour sentiment, as well as to the EUR/USD weakness. Additionally weighing on the Euro price is the US-China tension and the West versus Russian jitters.
No progress in the talks to avoid the US debt ceiling expiration and fears that the US may mark the ‘catastrophic’ default weighed on the market sentiment of late. Recently, US House Speaker Kevin McCarthy crossed wires, via Reuters, while suggesting no deal on the debt ceiling extension today but repeating previous optimism that they will get an agreement before June 01. Previously, Washington rolled out news stating the US Treasury has asked multiple agencies if they can delay the payment demands.
On Tuesday, preliminary figures of the May monthly PMIs signaled that the US Services sector keeps outgrowing the manufacturing ones and fuelled the Composite PMI figure to the highest levels in a year. That said, the US S&P Global Manufacturing PMI eased to 48.5 from 50.2 versus 50.0 market forecasts whereas Sevices PMI rose to 55.1 compared to 52.6 expected and 53.6. With this, the Composite PMI marked 54.5 figures versus the analysts’ expectations of 50.0 and 53.4.
On the other hand, the first readings of Eurozone HCOB monthly PMIs for May came in a little interesting despite an upbeat 55.9 number for the Services activity gauge.
Apart from the data, the latest comments from Atlanta Fed President Raphael Bostic, Richmond Fed President Thomas Barkin and San Francisco President Mary C Daly who backed the calls for higher Fed rates while citing the inflation woes, which in turn propelled the betts on the Fed rate increase in June. The same push back the Fed rate cut and allows the US Dollar to remain firmer despite a retreat in the US Treasury bond yields.
At home, European Central Bank (ECB) Vice President Luis de Guindos and policymaker Joachim Nagel ruled out policy pivot talks while citing the higher inflation to defend the rate hike bias.
Against this backdrop, Wall Street closed in the red and helped the US Dollar despite downbeat yields.
Looking ahead, the Eurozone calendar remains empty and may add strength to the latest EUR/USD inaction. However, risk catalysts and the latest Federal Open Market Committee (FOMC) Meeting Minutes will be crucial to watch for clear directions.
Also read: FOMC Minutes Preview: The complicated task of searching for clues
Technical analysis
EUR/USD remains bearish between a three-week-old descending resistance line and an upward-sloping trend line support stretched from late November 2022, respectively between 1.0805 and 1.0745.
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