EUR/USD wobbles below 1.0700 ahead of data, ECB

EUR/USD alternates gains with losses below the 1.0700 hurdle following Wednesday’s bounce off multi-week lows near 1.0630 on Thursday.

EUR/USD now focuses on data

EUR/USD trades at shouting distance from the 1.0700 barrier, although without a clear direction, on the back of the equally flattish mood in the greenback on Thursday.

In fact, the pair manages to put further distance from Wednesday’s sharp pullback to the 1.0635/30 band, as investors continue to adjust to recent comments from Fed speakers suggesting the probability that the Fed could stay on the sidelines at its next meeting on June 14.

Further news bolstering optimism among traders notes that a divided House passed a bill suspending the $31.4 trillion debt ceiling late on Wednesday, with majority backing from both Democrats and Republicans, raising hopes that it would be approved by the Senate before the weekend.

In the domestic calendar, preliminary inflation figures in the broader euro bloc see the headline CPI rising 6.1% YoY in May and 5.3% YoY when it comes to the Core print. In addition, the Unemployment Rate in the region receded to 6.5% in April. Earlier, Retail Sales in Germany expanded 0.8% MoM in April and contracted 4.3% over the last twelve months, while the final Manufacturing PMI came in at 42.9. Later in the session, the ECB will publish its Accounts of the May 4 gathering.

Across the pond, the ADP report is due, followed by Initial Claims, the ISM Manufacturing PMI, the final S&P Global Manufacturing PMI and Construction Spending. In addition, Philly Fed P. Harker is due to speak in the European evening.

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 0.03% at 1.0691 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).