EUR/USD marches firmly above 1.0700 post-ECB members’ hawkish commentary

EUR/USD bulls are reclaiming the 1.0700 mark on Tuesday, courtesy of ECB policymakers expressing the need for the central bank to exit from negative rates by the third quarter of 2022, further emphasized on Monday by ECB President Christine Lagarde. At 1.0732, the EUR/USD gains for the second straight day.

US Dollar weakness extend for two days on investors’ concerns of a “possible” US recession

The greenback remains soft for the second day of the week and is trading below 102.000 the lowest level since April 26, on growing concerns that the Federal Reserve would not achieve a soft landing and trigger a recession. Meanwhile, May’s US S&P Global PMIs showed mixed results, with the Services and Composite Index missing expectations while the Manufacturing PMI came unchanged.

Later, Richmond’s Fed Manufacturing Index plunged to -14 vs. 15 foreseen, adding to the list of Fed regional manufacturing reports showing deceleration or contraction. Late at around 16:20, the Fed Chair Jerome Powell would cross the wires.

In the meantime, the US 10-year benchmark note follows the buck’s footsteps and is also down 13 bps, sitting at 2.726%.

During the Eurozone session, the EU docket witnessed the release of S&P Global PMIs, which showed mixed results. The EU Manufacturing and Services PMI missed expectations, though downtick minimally. The German Manufacturing PMI beat expectations, carrying on the support from Monday’s German IFO readings, which showed the resilience of businesses and consumers.

Further ECB speaking crossed the wires on Tuesday. ECB’s President Lagarde said, “I don’t think that we’re in a situation of surging demand at the moment. It’s definitely an inflation that is fueled by the supply side of the economy. In that situation, we have to move in the right direction, obviously, but we don’t have to rush and we don’t have to panic.” In the meantime, ECB’s Francois Villeroy added that “A 50 bp hike is not part of the consensus at this point, I am clear. Interest rate hikes will be gradual.”

Albeit Lagarde and Villeroy’s efforts to push back, additional ECB “hawks” crossed wires. ECB’s Holzmann said a 50 bps hike in July would be appropriate. Furthermore, ECB’s Kazakhs added to that list and commented that the central bank should not rule out 50 bps rate rises and look for hikes in July and September, and possibly another in Q4.

In the week ahead, the EU docket is packed and will feature German Gfk Consumer Confidence, German GDP, and France’s Consumer Confidence. On the US front, Durable Goods Orders, May’s FOMC Minutes, US GDP Growth Estimates, and the Fed’s favorite gauge of inflation, the Personal Consumption Expenditure (PCE).

EUR/USD Price Forecast: Technical outlook

The EUR/USD remains downward biased, despite the last couple of weeks’ price action, which formed a bottom after dropping from 2021 tops at around 1.2349. Nevertheless, the shared currency is still hovering around the April 2020 lows near 1.0727, which means that a daily close above the previously mentioned would open the door for further gains. Otherwise, the EUR/USD rally to the 1.0720s area would be seen as an opportunity for EUR/USD bears to add to their positions and aim for a re-test of the YTD lows at 1.0348.

Upwards, the EUR/USD’s first resistance would be the 50-day moving average (DMA) at 1.0767. Break above would expose the March 7 daily low at 1.0805, followed by the 1.0900 mark. On the flip side, the major’s first support would be 1.0700. A breach of the latter would expose April 2017 daily low at 1.0635, followed by the 20-DMA at 1.0535.