EUR/USD surges above 1.0700 amid aggressive ECB comments

• EUR/USD has risen above 1.0700 on Tuesday amid more tailwinds from aggressive line comments from the ECB.
• The pair is now trading 1.5% higher on the week, despite the May PMI coming in slightly weaker than anticipated.
• Attention turns to US PMIs and Powell’s comments from the Fed later in the day as strategists warn of falling USD purchases.

Weaker-than-expected preliminary Eurozone PMI survey data for May did not deter euro bulls on Tuesday as (unlike the UK data) they still indicated solid underlying growth at despite continuing high inflationary pressures. Indeed, EUR/USD has been able to recapture the 1.0700 level with the pair receiving tailwinds from the ECB’s hawkish comments so far this week. At current levels between 1.0710-20, the pair is trading around 0.25% gains on the day, taking its weekly gains to around 1.5%.

To summarize, in a blog post on Monday, ECB President Christine Lagarde said the ECB would likely raise interest rates into positive territory by the end of the third quarter, a stance she reiterated in comments made on Tuesday. Other leading members of the ECB have supported this change in stance, including Bank of France director Francois Villeroy de Galhau, although some of the more aggressive members of the ECB have been annoyed that Lagarde and other ECB members have taken a 50 bps rate hike off the table. Austria’s Robert Holzmann was, on Tuesday, pushing for a 50bp hike in July.

Even if the aggressive members are not satisfied, the euro bulls seem to be. EUR/USD is almost 3.5% above lows hit earlier in the month at 1.0350, defying (for now) some analysts’ views for EUR/USD to reach parity in the coming weeks/months. The recent rally in the pair also comes despite continued dour sentiment in the global equity space, which would normally be a headwind given likely safe-haven USD flows.

EUR/USD is now eyeing a test of its 50 day moving average at 1.0760 and strategists are unsurprisingly wondering how much further the rebound needs to go. The main driver of USD gains so far this year has been the Fed’s hawkish turnaround and comments from policymakers last week suggested they are only getting more aggressive. Fed Chairman Jerome Powell is scheduled to speak at 16:20 GMT on Tuesday and is likely to reiterate the bank’s stance that it is ready to raise interest rates above neutral without hesitation if necessary to control inflation.

That’s a much more aggressive stance than the ECB’s and as a result, FX strategists suspect it won’t be long before USD bulls return to buy the dip, likely limiting the prospect of a prolonged USD bounce. EUR/USD. Attention will also turn to the upcoming release of the US flash PMI survey data for May at 13:45 GMT, which should show US growth remains strong and inflationary pressures high. .

Technical levels