- The euro under pressure, weakened marks daily lows against the dollar, the franc and the pound.
- Eurozone: inflation continues to accelerate and sets new highs.
- EUR/USD negative tone, trying to hold above 1.0700.
The EUR/USD is having the biggest daily decline in almost two weeks. The pair recently extended the lows and hit as low as 1.0687, the lowest since Thursday. This occurs in a context of a recovery in the dollar and some weakness in the euro, which is also falling against the Swiss franc and the pound.
The pair’s decline comes from a one-month high reached on Monday at 1.0787. The very short-term outlook now points to the downside. This could change if there is a return above 1.0735, where the 20 four hour moving average is.
The greenback is rebounding after days of falling markets. It is supported by a decline in the equity markets to which is added a rise in the yields of Treasury bonds. The 10-year rate is at 2.81%, far from last week’s floor.
For his part, the euro It has weakened in the last few hours. Not only is EUR/USD trading at daily lows but also EUR/CHF and EUR/GBP. Prior to this, it was known that inflation in the Eurozone rose more than expected in May to new all-time highs.
The annual harmonized price index (IPCA) climbed to 8.1%, above the 7.7% expected and higher than the previous 7.4%. The increase in the core IPCA was 3.8%. These figures reinforce expectations that aggressive rises in interest rates by the European Central Bank are ahead. They would be the first increases since 2011 and could take place in July.
“An ECB poised to act and poised to raise real yields continues to narrow the German-US two-year sovereign bond spread now to 205bps from a wide 255bps a couple of months ago. This has certainly supported EUR/USD. We suspect the spread may struggle to narrow within 200 bps and therefore doubt EUR/USD can sustain gains above the 1.08 area. We still have a forecast for the end of June at 1.05,” ING analysts said.
The economic calendar ahead for Tuesday shows US data, including the S&P CoreLogic Case-Shiller Home Price Index for March, the Chicago PMI, the Conference Board Consumer Confidence Index for May and the Dallas Fed manufacturing index.
Technical levels
Source: Fx Street
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