EUR/USD falls below 1.10 amid US credit tightening and debt ceiling concerns

• EUR/USD struggles to gain ground as concerns on the debt ceiling turned sentiment sour.
• Fed and ECB officials crossed newswires, though EUR/USD traders are focused on the US dynamics.
• Upcoming data: Germany’s inflation and Italy’s industrial production for Eurozone, US CPI for April.

The EUR/USD extends its losses on Tuesday past the 1.10 handle, briefly testing last week’s low of 1.0942, but bounced off that price level, above the 1.0950 area. Worries about the United States (US) debt ceiling, and a strong US Dollar (USD), weakened the prospects for a higher Euro (EUR). At the time of writing, the EUR/USD is trading at 1.0955, down 0.44%.

EUR/USD falls ahead of US CPI release

Wall Street is posting losses after the Fed’s Senior Loan Officer Opinion Survey (SLOOS) showed that credit conditions are tightening, thought “not as disastrous as many doomsayers had feared,” wrote analysts at Brown Brothers Harriman. Discussions around the US debt ceiling could heat on Tuesday, as US President Joe Biden will meet with Republicans and Democrats to lay the ground around the theme. Hence, as sentiment shifted sour, the EUR/USD surrendered the 1.1000 figure.

In the meantime, the US Dollar Index (DXY), a gauge that tracks the performance of six currencies against the US Dollar, climbs 0.29%, up at 101.680, a headwind for the EUR/USD. US Treasury bond yields are mixed, though the short term, the most sensitive to interest rates, the 2-year note gains one bps, at 4.024%.

The lack of data in the US agenda left EUR/USD traders leaning on words from the Federal Reserve (Fed) Governor Philip Jefferson. Jefferson commented that the banking system was sound and resilient and that institutions had begun to raise lending standards. Regarding inflation, it has started to slow in an “orderly fashion” and will come down as the economy continues to grow.

On the European front, the latest economic data from Germany had increased worries about a recession in the bloc. Meanwhile, European Central Bank (ECB) speakers continued their hawkish remarks, as ECB Joachim Nagel said that the central bank has not finished raising rates. Echoing some of his comments was Martins Kazaks, who commented: “We still have quite some ground to cover.”

Upcoming events.

The Eurozone economic calendar will feature Germany’s inflation data and industrial production in Italy. On the US front, the Consumer Price Index (CPI) for April is expected at 5% YoY, while the core reading at 5.5%.

EUR/USD Technical Levels