- As the greenback bulls take a breather, the EUR/USD rises to monthly highs.
- The major driver for the pair looks to be the ECB vs. Fed rate hikes.
- The preliminary May S&P Global Manufacturing and Services PMIs for the US and Eurozone support sellers.
EUR/USD fundamental forecast
In the London session, EUR/USD is hovering at 1.0706, with a 0.14% increase.
The EUR/USD extends Monday’s gains far upwards of 1.0700 on Tuesday, supported once again by the negative greenback and further hawkish comments from Chairwoman Lagarde.
For the time being, Lagarde reiterated that rates might be in positive territory in Q3, and she ruled out a Eurozone recession for the time being.
An extra leg from the Euro PMIs
The EUR/USD boosted as Germany’s flash Manufacturing PMI beat expectations and currently stands at 54.7 in May. On the other hand, France and the rest of Europe fell short of expectations, with 54.5 and 54.4, respectively.
The Quad summit
On Monday, President Joe Biden unveiled the Indo-Pacific Economic Framework (IPEF), a new strategy in Asia to fight expanding Chinese influence (IPEF). The announcement coincided with a summit of the Quad Alliance of Japan, Australia, India, and the United States.
US Trade Representative Katherine Tai threw cold water in hopes that the Sino-American tensions would be alleviated soon, at least in terms of trade.
The downgrades of major banks’ economic estimates for the United States and China also put risk aversion on the table, weighing on EUR/USD pricing.
Markets remain cautious
The US 10-year Treasury rates fell after the previous day’s comeback from a monthly low of approximately 2.86% to reflect the market mood.
In contrast to the Fed officials’ balanced statements, Tuesday’s aggressive Fedspeak appears to have impacted market sentiment. San Francisco Mayor Mary Daly and Kansas City Mayor Esther George were among them.
Key data releases from the Eurozone
On the EUR docket, we have ECB President Lagarde’s speech.
Key data releases from the US
Chief Powell will deliver remarks at a Las Vegas event in the US data arena, and new home sales are also scheduled for later in the NA session.
What’s next to watch for EUR/USD?
Despite the pair’s current upward trend, the single currency’s overall prognosis remains bearish for the time being. As is customary, spot price movement should reflect dollar dynamics, geopolitical worries, and the Fed-ECB rate differences.
EUR/USD technical analysis: bulls remain strong for now
EUR/USD has gained some pace today and has increased by 0.14%. The pair is below its 100-day moving average on the daily chart, and the RSI is above 50. The pair is trading at 1.0706.
The EUR/USD is now hitting the 1.0706 level. A fall below 1.0661 will bring the pair towards the 1.0555 support level. If the pair falls below this level again, it will challenge the next support level at 1.0461.
On the upside, the pair can go towards the next resistance level, around 1.0738. A break over 1.0815 will open the door for a test of the following resistance level of 1.0936.