10 June 2022

  • EUR/USD remains under pressure and breaches 1.0600.
  • The greenback extends Thursday’s ECB-led recovery.
  • Chair Lagarde, US CPI, Consumer Sentiment next on tap.

The selling pressure remains well and sound around the European currency and forces EUR/USD to break below the 1.0600 mark to clinch new 2-week lows.

EUR/USD weaker post-ECB looks to US CPI

EUR/USD adds to Thursday’s post-ECB slump and breaches the 1.0600 support, as sentiment remains sour and the rebound in the greenback picks up extra pace.

So far, Friday’s pullback in the pair comes pari passu with the knee-jerk in the German 10y Bund yields, while the US cash markets also see a modest decline in the 10y and 30y bond yields.

Investors, in the meantime, keep selling the euro after the ECB’s event came short of hawkish expectations on Thursday despite the central bank announcing a 25 bps rate hike in July and left the door open to a probable 50 bps move at the September meeting (depending on the inflation outlook).

Earlier in the session, ECB’s Holzmann suggested that the neutral rate could be around 1.5%, a view shared by his colleague Villeroy; while member Nagel stressed that a resolute action by the central bank is needed to tackle inflation in the region.

Absent releases of note in the domestic calendar, the release of US inflation figures for the month of May will take center stage later in the NA session seconded by the U-Mich preliminary print for the current month.

What to look for around EUR

EUR/USD came under renewed and unexpected downside pressure following the ECB gathering on Thursday.

The resumption of the selling bias came in response to accelerated inflows into the greenback, particularly exacerbated after the ECB sounded less hawkish than expected at its meeting, despite confirming a rate hike next month as well as the end of the net asset purchases under the APP.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns, and the Fed-ECB divergence, while higher German yields, persistently elevated inflation in the euro area, and a decent pace of the economic recovery in the region is also supportive of an improvement in the mood around the euro.

Eminent issues on the back boiler: Speculation of the start of the hiking cycle by the ECB as soon as this summer. Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, the spot is losing 0.12% at 1.0601 and a breach of 1.0590 (monthly low June 10) would target 1.0532 (low May 20) en route to 1.0459 (low May 18). On the other hand, the immediate up barrier emerges at 1.0786 (monthly high May 30) seconded by 1.0925 (100-day SMA) and finally 1.0936 (weekly high April 21).

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