- EUR/USD edges higher as bulls take a breather after two-month uptrend.
- Strong US Treasury yields fail to trigger US dollar rebound amid stimulus hopes.
- Tapering looms more over the Fed than the ECB, suggestion mild reaction to Eurozone CPI.
- Inflation component will be watched closely inside ISM Manufacturing PMI.
EUR/USD remains sidelined around 1.2230, up 0.03% intraday, during the first trading day of June heading into the European session on Tuesday. The currency major pair fails to cheer the US dollar weakness amid cautious sentiment ahead of the key Eurozone Consumer Price Index (CPI) and the US ISM Manufacturing PMI data for May.
Full markets return could please buyers even as the US Treasury yields jump. The sluggish markets could best be described by the stock futures that are as steady as a stone by the press time.
In addition to the pre-data caution, mixed sentiment concerning the inflation and stimulus, as well as the coronavirus (COVID-19) vaccine updates, also add to the market confusion. While the inflation figures are less worrisome of the ECB, Friday’s US Core PCE Price Index backed tapering talks. Though, chatters surrounding US President Joe Biden’s $6.0 trillion budget, not to forget the $1.7 trillion infrastructure spending plan, keep buyers hopeful.
It’s worth noting that Eurozone is yet to reach the US and the UK level as far as the vaccine conditions and jabbing are concerned. However, the recent easing of the virus, backed by faster inoculation, favors the pair bulls. The optimism could well be justified by the latest comments from German Chancellor Angela Merkel suggesting no extension to the virus lockdown after the currency expiry in June.
Additionally, upbeat prints of Germany’s Harmonized Index of Consumer Prices (HICP), 2.4% versus 2.5% expected and 2.1% prior, adds to the EUR/USD strength.
On the contrary, doubts over the Fed’s next moves become firmer as the Fed policymakers will observe the blackout period after this week and there hasn’t been any strong line between the supporters of tapering and those against such moves.
This highlights today’s Eurozone CPI and US PMI as the key data ahead of Friday’s US Nonfarm Payrolls (NFP). Forecasts suggest the bloc’s inflation gauge to inch closer towards the 2.0% target versus 1.6% forecast whereas the US ISM Manufacturing PMI is likely to repeat the 60.7 level.
While Eurozone CPI should be observed for a possible upside, any disappointment from the US PMI data will counterproductive for the US dollar and could add to the EUR/USD upside. This highlights the inflation component of ISM data after successive 13 beats to the forecast.
Technical analysis
Unless breaking a two-month-old ascending trend line, around 1.2200, EUR/USD remains directed to the monthly high of 1.2266. Though, any further upside needs to cross 1.2275 and 1.2310 intermediate hurdles before targeting the yearly top near 1.2350.
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