- EUR/USD quickly reverses the post-ADP knee-jerk.
- US ADP report surprised to the upside in May.
- ISM Manufacturing takes centre stage later in the session.
The broad-based upbeat mood in the risk complex motivates EUR/USD to reclaim the area above the 1.0700 barrier on Thursday.
EUR/USD appears supported near 1.0630
EUR/USD manages to reverse a sharp weekly pullback to the 1.0630 region on Wednesday amidst the renewed downside pressure in the greenback, which in turn appears propped up by now rising expectations of a Fed’s pause at the June gathering.
The latter appears reinforced by comments from Fed’s Harker and Jefferson late on Wednesday, although firmer-than-expected results from the US labour market earlier on Thursday could put that idea to the test soon.
Extra support for the single currency emerges after ECB speakers – Lagarde, Kazaks, Rehn – who advocated for the continuation of the tightening bias in a context of sticky inflation.
Speaking about inflation, flash CPI for the broader Euroland saw prices gain 6.1% YoY in May and 5.3% from the Core print. Despite disinflationary pressures remained in place in May, the CPI still runs well above the ECB’s 2% goal.
In the US, the ADP report showed the US private sector added 278K jobs during last month and Initial Claims increased by 232K in the week ended on May 26th. Later in the NA session, the ISM Manufacturing will be in the centre of the debate seconded by Construction Spending and the final S&P Global Manufacturing PMI.
What to look for around EUR
The sell-off in EUR/USD seems to have met some initial contention around the 1.0630 region, or 2-month lows, 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 Retail Sales/Final Manufacturing PMI, EMU Final Manufacturing PMI, Flash Inflation Rate, ECB Lagarde, ECB Accounts (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 gaining 0.16% at 1.0705 and a break above 1.0811 (100-day SMA) would target 1.0883 (55-day SMA) en route to 1.1000 (round level). On the downside, initial contention comes at 1.0635 (monthly low May 31) seconded by 1.0516 (low March 15) and finally 1.0481 (2023 low January 6).
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