EUR/USD steadies near 1.0700 as Eurozone inflation, ECB’s Lagarde and US employment data loom

• EUR/USD licks its wounds at the lowest levels in 10 weeks, remains sidelined of late.
• Fresh twist in Fed versus ECB formula amplifies importance of today’s Eurozone HICP, US ADP Employment Change.
• Risk catalysts, PMIs should be eyed closely amid a slew of data/events scheduled for publishing.

EUR/USD portrays the pre-data anxiety around 1.0690 amid very early Thursday morning in Europe. In doing so, the Euro pair fails to cheer the market’s risk-on mood, as well as receding hawkish bets on the Federal Reserve (Fed) ahead of the top-tier data/events scheduled for publishing in the US and Europe.

On Wednesday, Germany’s Inflation, per the Consumer Price Index (CPI), slid to 6.1% YoY in May from 7.2% in April, versus 6.5% expected. On the same line, the European Central Bank's (ECB) preferred gauge of inflation, namely the annual Harmonised Index of Consumer Prices (HICP), also eased to 6.3% YoY during the said month from 7.6% prior and compared to analysts' estimate of 6.8%.

Following the inflation data, ECB Vice President, Luis de Guindos, said that Victory over inflation is not there yet while also adding, “But the trajectory is correct.” However, ECB policymaker Madis Muller cited no signs of slowing in Core inflation while saying, “It is very likely that the ECB will hike by 25 bps more than once.”

Alternatively, US JOLTS Job Openings rose to 10.103M in April versus 9.375M expected and 9.745M prior whereas Chicago Purchasing Managers’ Index dropped to 40.4 for May from 48.6 prior and 47.0 market forecasts. Earlier in the week, the US consumer sentiment gauge improved but the details were unimpressive.

Furthermore, Not only the mixed US data but comments from multiple Fed speakers also raised doubts on the US central bank’s ability to lift the rates further, which in turn allowed Wall Street Journal’s (WSJ) Nick Timiraos to suggest that the Federal Open Market Committee (FOMC) is likely to hold interest rates steady in June.

It’s worth noting that the US Republican-controlled House of Representatives recently passed the debt-ceiling bill and favored the market’s optimism as the ruling Democrats dominate in the Senate and can easily avoid the default now. The same news exerts downside pressure on the US Dollar and puts a floor under the EUR/USD price of late.

Looking ahead, Eurozone CPI and HICP for May will be closely observed as multiple inflation data from the bloc have already pushed back the ECB hawks. Following that, the US ADP Employment Change, ISM Manufacturing PMI and S&P Global PMIs for May should be observed for fresh impulse. Above all, the US policymakers’ voting on the debt-ceiling bill in the Senate and ECB President Christine Lagarde’s speech will be crucial to observe as the EUR/USD buyers are flexing muscles but the US Dollar bulls are less likely to leave the ground.

Technical analysis

The bearish MACD signals join a convergence of the previous support line from November 2022 and a one-month-old descending resistance line, close to 1.0720 at the latest, to challenge the EURU/USD bulls. the latest low of 1.0635 and the 1.0600 round figure may prod the EUR/USD bears before directing them to March’s bottom surrounding 1.0515.