EUR/USD opens the door to further decline below 1.0500, focus on ECB, data

• EUR/USD remains under pressure around 1.0500.
• German 10y bund yields approach the 1.0% yardstick.
• Germany labour market report, ECB Lagarde next on tap.

The European currency remains under pressure and now motivates EUR/USD to challenge once again the key area around 1.0500.

EUR/USD looks to data, ECB, FOMC

EUR/USD adds to the pessimism witnessed at the beginning of the week against the backdrop of rising cautiousness among market participants ahead of the FOMC event on Wednesday.

In the meantime, spot remains well under pressure in the 1.0500 neighbourhood, as the sentiment surrounding the dollar stays strong amidst the continuation of the rally in yields on both sides of the Atlantic and the palpable possibility of a hawkish message at the FOMC event on Wednesday. Furthermore, the German 10y bund yields surpass the key 1.0% level for the first time since June 2015.

Interesting day in the domestic docket, as the German labour market report for the month of April is due later seconded by the speech by Chairwoman C.Lagarde and Board member E. Fernandez-Bollo (Bank of Spain).

Across the pond, Factory Orders and the JOLTs Job Openings/Quits are also expected.

What to look for around EUR

EUR/USD remains depressed and flirts with the 1.0500 zone amidst lack of upside traction and absence of bulls’ conviction. The outlook for the pair still remains tilted towards the bearish side, always in response to dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by speculation the ECB could raise rates at some point around June/July, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Germany Unemployment Rate, Unemployment Change, EMU Unemployment Rate, ECB Lagarde (Tuesday) – Germany Balance Trade, Final Services PMI, EMU Final Services PMI, Retail Sales (Wednesday) – Germany Factory Orders, Construction PMI (Thursday) – Germany Industrial Production (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Impact on the region’s economic growth prospects of the war in Ukraine.

EUR/USD levels to watch

So far, spot is down 0.01% at 1.0499 and a break below 1.0470 (2022 low April 28) would target 1.0453 (low January 11 2017) en route to 1.0340 (2017 low January 3 2017). On the flip side, the next hurdle emerges at 1.0593 (high April 29) followed by 1.0936 (weekly high April 21) and finally 1.1000 (round level).