EUR/USD loses the grip and drops below the 1.0800 area

The single currency loses some momentum and forces EUR/USD to recede to the sub-1.0800 region, or 2-day lows, on turnaround Tuesday.

EUR/USD weaker after PMIs, USD-buying

EUR/USD leaves behind two consecutive sessions with gains and refocuses on the downside on the back of mixed results from preliminary PMIs for both Germany and the broader Eurozone in May.

On the latter, and while the manufacturing sector remained weak, the services industry maintained its healthy momentum and is expected to have improved further during this month.

In the meantime, US debt-ceiling talks are predicted to keep ruling sentiment in global markets in the very near term, while speculation of further interest-rate hikes by the ECB at its meetings in June and July and probably September remain on the rise.

Across the pond, flash Manufacturing and Services PMIs for May are also due, along with New Home Sales and the speech by Dallas Fed President Lorie Logan.

What to look for around EUR

EUR/USD struggles to reclaim further ground and trades in a vacillating fashion around the key 1.0800 zone.

The movement of the euro's value is expected to closely mirror the behaviour of the US Dollar, which 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, July and maybe September. Impact of the Russia-Ukraine war on growth prospects and inflation outlook in the region, particularly risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is losing 0.20% at 1.0791 and faces immediate contention at 1.0759 (monthly low on May 19) seconded by 1.0712 (low on March 24) and finally 1.0516 (low on March 15). On the upside, a break above 1.0872 (55-day Simple Moving Average) would target 1.1000 (round level) en route to 1.1095 (2023's high on April 26).