EUR/USD loses the grip and drops to 2-month lows near 1.0780

• EUR/USD intensifies the leg lower to 1.0780 on Thursday.
• ECB’s A. Müller ruled out rate cuts in early 2024.
• US Philly Fed index, weekly Claims surprise to the upside.

EUR/USD accelerates losses and breaks below the key support at 1.0800 the figure to print new multi-week lows on Thursday.

EUR/USD debilitates to 2-month lows

EUR/USD offers additionally ground and withdraws for the third consecutive meeting on Thursday, breaching at a similar energy the 1.0800 key support to record new lows near 1.0780 against the backdrop of the intense rebound in the buck.

As seen in past days, the persisting risk aversion appears propped up by uncertainty around the US debt ceiling issue, while now dwindling speculation of a potential pause by the Fed in June also adds to the dollar’s upside bias.

Additionally burdening the euro emerges the now milder tone from ECB's rate setters, after VP L. De Guindos contended before in the session that the bank has proactively done the vast majority of the tightening cycle, while his colleague A. Müller discarded the idea of interest rate cuts as soon as early in 2024.

No data releases in the euro docket leaves the attention to the US data space, where Initial Jobless Claims rose by 242K in the week to May 13 and the Philly Fed Manufacturing index improved to -10.4 in May. In addition, Existing Home Sales dropped 3.4% MoM in April (4.28M units) and the CB Leading Index contracted 0.6% MoM in April.

What to look for around EUR

EUR/USD extends the weekly decline and breaks below the key 1.0800 neighbourhood to print new multi-week lows around 1.0780 on Thursday.

The movement of the euro's value is expected to closely mirror the behaviour of the US Dollar and will likely be impacted by any differences in approach between the Fed and the ECB with regards to their plans for adjusting interest rates.

Moving forward, hawkish ECB-speak continue to favour further rate hikes, although this view appears in contrast to some loss of momentum in economic fundamentals in the region.

Eminent issues on the back boiler: Continuation of the ECB hiking cycle in June and July (September?). Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is retreating 0.52% at 1.0782 and faces immediate contention at 1.0775 (monthly low May 18) seconded by 1.0712 (low March 24) and finally 1.0516 (monthly low March 15). On the flip side, the breakout of 1.1095 (2023 high April 26) would target 1.1100 (round level) en route to 1.1184 (weekly high March 21 2022).