The Euro’s sudden fall from year-to-date highs against the US dollar has appeared to slow down over the last few trading sessions, leaving intact support levels just beneath the market on the charts, though local economic data and developments across the Atlantic could yet see these tested again this week.
Europe's single currency opened the new week trading near two-month lows after testing an important Fibonacci support level near 1.0760 on the charts in early Friday trade before recovering its 100-day average near 1.08 in early hours of Europe's Monday session.
Dollar selling has helped steady the Euro since Federal Reserve Chairman Jerome Powell and others suggested interest rates could be left unchanged next month for the first time since January last year in the absence of an argument to the contrary from U.S. economic data in the interim.
"I suppose talking again is a step forward from where we were on Friday, when the dollar was being sold and gloom was descending," writes Kit Juckes, chief FX strategist at Societe Generale, in a Monday reference to discussions in Washington about the U.S. government debt ceiling.
"The US has no data anywhere near as important as the debt ceiling talks, but April PCE and the deflator will be interesting on Thursday," Juckes adds.
This Thursday and Friday's releases of Personal Consumption Expenditures reports covering consumer spending and inflation within the Fed's preferred measure of the consumer price basket are exactly the kinds of official statistics that could easily overturn the Euro-Dollar rate's apple cart.
The PCE inflation rate is the measure targeted by the Federal Reserve and so could upset market hopes for a June pause in the interest rate cycle this week if there is any similarity between U.S. inflation pressures and those in Canada where inflation surprised on the upside for April just last week.
A repeat performance in the U.S. would risk seeing the Euro ending the week on the back foot, although before then the U.S. government debt ceiling saga is likely to vie with S&P Global PMI surveys of Europe's manufacturing and services sectors and a host of other data for market attention.
"EUR/USD has been moved almost entirely by the dollar in the past week or so, as debt-ceiling news dominated. While this will remain the primary driver this week, some domestic news is likely to come into the mix on the euro side as well," says Francesco Pesole, an FX strategist at ING.
"On the European Central Bank side, we heard some rather hawkish comments by President Christine Lagarde, who reinforced her pushback against the notion of a pause: she will speak again on Wednesday," Pesole he added
Market pricing of the European Central Bank interest rate outlook may also have helped to support the Euro in recent weeks having shifted in an even more hawkish direction whereby two further quarter percent increases in borrowing costs have become fully priced-in for the months ahead.