EUR/USD wobbles around the 1.0800 region amidst US debt ceiling, risk trends

• EUR/USD trades without a clear direction near 1.0800.
• Market participants remain prudent ahead of debt ceiling debate.
• EMU Flash Consumer Confidence only due later in the euro docket.

The single currency alternates gains with losses vs. the greenback and motivates EUR/USD to hover around the 1.0800 neighbourhood at the beginning of the week.

EUR/USD looks at US debt ceiling, risk trends

EUR/USD fades the initial uptick to the 1.0830 region against the backdrop of the generalized lack of direction in the global markets at the beginning of the week.

Moving forward, all the attention is expected to be on the US debt ceiling negotiations this week, where consensus among investors continues to point to an agreement in the 11^th hour (as usual).

The European currency, in the meantime, remains under scrutiny on the back of now shrinking hawkishness from some members of the ECB Board ahead of the next event in June, where a 25 bps rate hike appears well anticipated.

In the docket, the European Commission (EC) will publish its Consumer Confidence gauge for the month of May, while speeches by Fed’s Williams, Bullard and Bostic are only due across the pond.

What to look for around EUR

EUR/USD struggles to reclaim further ground and trades in a vacillating fashion around the key 1.0800 zone.

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.

Key events in the euro area this week: EC Flash Consumer Confidence (Monday) – Germany, EMU Advanced Manufacturing/Services PMI (Tuesday) – Germany IFO Business Climate (Wednesday) – Germany Final Q1 GDP Growth Rate, GfK Consumer Confidence (Thursday) – Italy, France Consumer Confidence (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle in June and July (and 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 losing 0.04% at 1.0800 and faces immediate contention at 1.0759 (monthly low May 19) seconded by 1.0712 (low March 24) and finally 1.0516 (low March 15). On the upside, a break above 1.0868 (55-day SMA) would target 1.1000 (round level) en route to 1.1095 (2023 high April 26).