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  • EUR/USD reverses Friday’s losses even as bulls step back from intraday top.
  • Off in US, stimulus hopes propel risk-on mood, drag DXY.
  • Germany’s Preliminary HICP for May keeps reflation fears on the table but not signaling ECB to become Fed.
  • Risk catalysts will be on the driver’s seat amid long weekend in the US, the UK.

EUR/USD extends Friday’s recovery moves to 1.2205, up 0.07% intraday, heading into Monday’s European session. The currency major pair dropped to the lowest in two weeks the previous day before bouncing off 1.2132 amid the market’s risk-on mood that favors the buyers amid a quiet session backed by a US long weekend in American and Britain. However, cautious sentiment ahead of Germany’s preliminary Harmonized Index of Consumer Prices  for May seems to test the bulls of late.

A stronger than expected figure of the Fed’s preferred gauge of inflation, Core Personal Consumption Expenditure (PCE) Price Index, propelled the reflation woes and favored the US dollar index (DXY) on Friday. However, the following announcement from US President Joe Biden, concerning $6.0 trillion of budget and upbeat GDP forecasts, trimmed the safe-haven bid of the US dollar.

The risk-on mood extends to Monday as Biden stretched the infrastructure spending talks to June and China flashes mixed PMI data amid a quiet session.

Although the US-China tussles over the phase-one trade deal and the Brexit headlines test market sentiment, S&P 500 Futures print mild gains amid hopes of further stimulus and steady vaccinations backing faster economic recovery in the west.

While the European Central Bank (ECB) is comparatively less disadvantaged when it comes to inflation, any further heating of the bloc’s central bank’s preferred gauge of inflation could test the EUR/USD bulls. It’s worth mentioning that the ECB policymakers have had a little problem taming the reflation fears as markets do believe the bloc has growth problems and isn’t likely to heat too much. That said, the preliminary reading of German’s Harmonized Index of Consumer Prices (HICP) for May is expected to jump to 2.4% versus 2.1% prior, near the ECB target.

Other than the German data, chatters over US stimulus, spending plan and US-China tussles could also entertain the EUR/USD traders. However, an off in the US can help the pair keep the latest recovery moves with smaller moves.

Technical analysis

Friday’s Dragonfly Doji off 21-day SMA near 1.2145 keeps EUR/USD buyers directed towards the monthly top of 1.2266.