The EUR/USD around 1.0718 Amidst Thin Trading Conditions
The EUR/USD currency pair is experiencing a relatively calm start to the trading week, with prices hovering around the 1.0720/30 level. Despite a lack of clear direction, both the euro and the US dollar are displaying a sense of uncertainty. Additionally, trading conditions are expected to remain thin due to the Memorial Day holiday observed in the United States.
The EUR/USD Vulnerable to Risk Sentiment and US Economic Data
Following a brief dip just above the key support level of 1.0700 on Friday, the EUR/USD has managed to regain some stability and is currently trading in the low-1.0700s. This recovery can be attributed to the general lack of market direction across the globe.
Given the inactivity in US markets caused by the Memorial Day holiday, the foreign exchange market has shown minimal reaction to the recent debt ceiling deal. However, European stock markets have opened on a positive note, reflecting optimism among investors.
Market participants are cautiously optimistic that the agreement to raise the US debt ceiling will receive approval from Congress, thereby averting the risk of a government default. This sentiment emerged after President Biden and House Speaker McCarthy reached an agreement during the weekend.
No significant economic data releases are scheduled for Monday in both the United States and the Eurozone, indicating a relatively quiet day in terms of market-moving events.
Key Factors Affecting the EUR
EUR/USD's downward momentum has encountered strong support around the 1.0700 level for now. Going forward, the pair's performance will likely be influenced by the US Dollar's behavior and any divergence in monetary policy between the Federal Reserve and the European Central Bank (ECB) regarding interest rate adjustments.
Although hawkish comments from ECB officials continue to support the possibility of further rate hikes, there are indications of a slowdown in economic fundamentals within the region. This could potentially undermine the case for tightening monetary policy.
Important Events and Issues Impacting the EURUSD
This week, several key events and economic indicators in the Eurozone are worth monitoring. On Tuesday, data releases include the final figures for Consumer Confidence, Economic Sentiment, and Industrial Sentiment in the Eurozone. Wednesday's highlights feature Germany's Unemployment Change, Unemployment Rate, Flash Inflation Rate, and a speech by ECB President Lagarde. On Thursday, noteworthy releases include Germany's Retail Sales and Final Manufacturing Purchasing Managers' Index (PMI), Eurozone's Final Manufacturing PMI and Flash Inflation Rate, ECB President Lagarde's speech, and the ECB's Accounts.
In addition to these events, there are ongoing concerns surrounding the ECB's decision to continue its interest rate hikes in June and July, and possibly in September. The Russia-Ukraine conflict remains a key issue that could impact economic growth and inflation prospects in the region. Moreover, the risk of inflation becoming entrenched is also a matter of consideration.
Key Levels to Monitor in the EUR/USD
Presently, the EUR/USD pair has advanced by 0.04% to reach 1.0726. A decisive break above the 100-day Simple Moving Average (SMA) at 1.0814 would open the door for further gains towards the 55-day SMA at 1.0880 and the psychological level of 1.1000. Conversely, immediate support can be found at 1.0701, which represents the monthly low recorded on May 26. This is followed by the lower level of 1.0516 reached on March 15 and the 2023 low of 1.0481 established on January 6.