Euro stalls awaiting US debt talks
After bottoming out in multi-week lows just pips above the key 1.0700 mark on Friday, EUR/USD manages to regain some composure and navigates the low-1.0700s on Monday on the back of the generalized lack of direction in the global markets.
Indeed, trade conditions and volatility are expected to remain scarce on Monday in response to the inactivity in the US markets due to the Memorial Day holiday.
No major reaction in the FX world following the deal around the USD debt ceiling issue so far, although European stock markets have opened the session in an optimistic fashion.
Furthermore, investors are extensively hopeful that the arrangement to raise the U.S. debt ceiling will pass a separated Congress. This view comes after President Biden and House Speaker McCarthy agreed throughout the end of the week to raise the debt ceiling and stay away from a very first government default.
EUR/USD’s sell-off seems to have met some decent contention around the 1.0700 neighbourhood so far.
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 continue to favour further rate hikes, although this view appears in contrast to some loss of momentum in economic fundamentals in the region.
Key events in the euro area this week: EMU Final Consumer Confidence, Economic Sentiment, Industrial Sentiment (Tuesday) – Germany Unemployment Change, Unemployment Rate, Flash Inflation Rate, ECB Lagarde (Wednesday) – 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.