EUR/USD under pressure in key resistance, focus turns to ECB

  • EUR/USD is starting flat in the open, licking wounds from Friday’s selloff.
  • The ECB will be at the center of concerns in the coming week.

At 1.0721, EUR/USD is stable early in the day ahead of what could be a busy week with the European Central Bank underway and with plenty of ground to regain after Friday’s whitewash.

A tight U.S. labor market pushed the U.S. dollar higher against a basket of currencies on Friday as investors increased their bets on the Federal Reserve ahead of an aggressive path of interest rate hikes.

Nonfarm payrolls rose by 390,000 jobs last month, the Labor Department said in its closely watched jobs report on Friday, significantly beating forecasts of about 325,000 jobs in May. The US dollar index (DXY), which tracks the greenback against six other major currencies, rose 0.4% to 102.16 after hitting 102.22 after the jobs report. For the week, the index rose about 0.5%.

“The May report supports the view that while the labor market remains firm, it continues to gradually slow,” TD Securities analysts said. ”We believe today’s report does not change the Fed’s calculus, supporting their inclination for early interest rate hikes until it reaches a more neutral stance by the end of the month. fall. ”

“This report won’t do much to change the price action in the FX space, but it does mean that the better the data, the harder it will be for a pause or reduced pace of tightening later this year. The upcoming US CPI report and MoM reading will be much more important to the overall USD momentum.

Core prices likely remained high in May, with the series posting a second straight 0.5% increase in month-on-month growth. A drag on inflation recently, we now expect used vehicle prices to contribute, advancing for the first time in four months. We also expect continued momentum in air fares and housing inflation. Our MoM forecast implies 8.4% / 5.9% YoY for total prices/core. ”

The ECB in focus

This backdrop is problematic for currencies that don’t have aggressive rises (like the yen), while it means less of a problem for those that do (like the euro), analysts argued ahead of the CEDAW meeting. ECB this week.

”We expect the ECB to announce that the APP will end in a few weeks and send a strong signal that rate hikes are coming in July and September (October remains a more interesting meeting in this sense)’ ‘, the analysts said. “The forecast will show higher inflation and weaker growth, underscoring the ECB’s challenge going forward.”

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