EUR/USD extends the decline to the 1.0670 region

EUR/USD remains on the defensive and keeps navigating in the sub-1.0700 zone on Wednesday.

EUR/USD focused on ECB-speak, Chinese data

EUR/USD corrects further south on Wednesday amidst the broad-based sour mood in the risk-linked galaxy, particularly after Chinese trade balance figures reignited concerns over the recovery in the country’s economy.

Against that, the greenback extends the buying interest and keeps the USD Index (DXY) well bid above the 104.00 barrier, exposing at the same time a probable deeper pullback in the pair to, initially, the May low near 1.0630 (May 31).

Back at the ECB, Board member I. Schnabel argued that the impact of the current ECB tightening cycle is expected to peak at some point in 2024, reiterating that underlying inflation remains elevated and that the central bank has still further ground to cover.

In the docket, Industrial Production in Germany expanded less than expected 0.3% MoM in April.

In the US, MBA Mortgage Applications are due followed by trade balance figures and Consumer Credit Change.

What to look for around EUR

EUR/USD flirts with weekly lows near 1.0670 amidst the gradual recovery in the greenback so far this week.

In the meantime, the pair’s price action 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 continues to favour further rate hikes, although this view appears to be in contrast to some loss of momentum in economic fundamentals in the region.

Key events in the euro area this week: Germany Industrial Production (Wednesday) - EMU Flash GDP Growth Rate (Thursday).

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 0.09% at 1.0683 and faces initial support at 1.0635 (monthly low May 31) seconded by 1.0516 (low March 15) and finally 1.0481 (2023 low January 6). On the upside, the surpass of 1.0779 (weekly high June 2) would target 1.0808 (100-day SMA) en route to 1.0881 (55-day SMA).