EUR/USD pressured in key resistance, focus turns to ECB

• EUR/USD starts flat in the open, licking wounds from Friday's sell-off. 
• The ECB will be a key focus for the week ahead. 

At 1.0721, EUR/USD is flat at the start of the day ahead of what could be a busy week with the European Central Bank taking place and with plenty of ground to make back following Friday's whitewash. 

A tight US labour market sent the US dollar higher against a basket of currencies on Friday as investors increased their stakes on the Federal Reserve in anticipation of an aggressive path of interest rate hikes.

Nonfarm Payrolls increased by 390,000 jobs last month, the Labor Department said in its closely watched employment report on Friday, way exceeding the forecasts or around 325,000 jobs in May. The US Dollar Currency Index (DXY), which tracks the greenback against six other major currencies, was 0.4% higher at 102.16 after rising as high as 102.22 following the jobs report. For the week, the index was up around 0.5%.

''The May report supports the view that while the labour market remains firm, it continues to gradually slow,'' analysts at TD Securities said. ''We think today's report does not change the calculation for the Fed, supporting their inclination to front-load interest rate hikes until it reaches a more neutral stance by the fall.''

''This report will do little to change the price action in the FX space, but it does mean that the better the data, the more difficult that a pause or reduced pace of tightening later this year becomes. The upcoming US CPI report and MoM reading will be far more important for broad USD dynamics.

Core prices likely stayed strong in May, with the series registering a second consecutive 0.5% MoM increase. A drag on inflation recently, we now expect used vehicle prices to be a contributor, advancing for the first time in four months. We also look for continued momentum in airfares and shelter inflation. Our MoM forecasts imply 8.4%/5.9% YoY for total/core prices.''

ECB in focus

This backdrop is problematic for currencies that do not have aggressive hikers (like the yen), while it means less of an issue for those that do (like the EUR), the analysts argued ahead of this week's ECB meeting. 

''We expect the ECB to announce that the APP will end within 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. ''Forecasts will show stronger inflation and weaker growth, highlighting the ECB's challenge going forward.''