EUR/USD on front foot but struggles for momentumSupported near 1.0867, 1.0820 on charts short-termU.S. & European data headwinds & Asia FX in focus
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The Euro to Dollar exchange rate entered the new week on the front foot near two-month highs but was quick to lose momentum and could now be at risk of slipping further back to the round number of 1.08 or below if Asia Pacific currencies weaken if U.S. economic data leads the greenback to strengthen afresh.
Europe's single currency rose early in the new week and remained buoyant throughout the European session on Monday but was quick to lose steam in the North American trading session as earlier recoveries in Chinese and Japanese exchange rates went into reverse.
"Stronger Yuan fixings by the PBoC last week failed to curb offshore selling but the CNH started the new month on a slightly stronger footing in the wake of better than forecast private Caixin PMI data," says Kenneth Broux, an FX strategist at Societe Generale.
"The PBoC set the yuan fixing about 310 pips stronger at this morning’s fix. Dip buying in CNH remains unconvincing. Newswires on Friday reported that recent yuan fluctuations were still within a “reasonable range” and did not cause market panic," he adds in a Monday market commentary.
Most currencies moderated with the Dollar strengthening on Monday after the Institute for Supply Management (ISM) Manufacturing PMI survey suggested a recession in the industrial sector deepened last month following declines in new orders, prices and also, notably, employment.
Above: EUR/USD shown at 15-minute intervals alongside Yen and Renminbi relative to the Dollar.
The report was a prelude to Thursday's results from the latest survey of the larger and much more important services sector, which the consensus suggests will cast the world's largest economy as spluttering toward a recession in June.
"With the Federal Reserve seemingly intent on raising interest rates further, these two interest rate-sensitive sectors – construction and manufacturing – are likely to find things tougher as we head through the second half of 2023," says James Knightley, chief international economist at ING.
"This [services] sector faces its own challenges, however, with the restart of student loan repayments for 43 million Americans from October. At a monthly average cost of $350 per person, this works out at around $180bn in aggregate for a year and is equivalent to around 1% of consumer spending," he adds.
The ISM surveys are interspersed with the release of May's Job Openings and Labour Force Turnover Survey, which is watched closely by interest rate setters at the Federal Reserve, and is followed on Friday by the non-farm payrolls report for June.
But if Monday's survey and price action in EUR/USD is any guide, then this week's U.S. data might be more of a downside risk for the Euro than anything else and particularly if European economic figures continue to underwhelm economist forecasts.
Above: Quantitative model estimates of ranges for this week. Source Pound Sterling Live.
European economic data is limited in quantity this week and overshadowed in its importance by the U.S. offering with only retail sales figures for the month of May coming from the continent on Thursday, though the single currency could be susceptible to weakness if the data suggest weakness in consumer spending.
Continental economic data has softened persistently in recent months but the weakness has been confined mainly to the manufacturing sector and parts of the economy concerned with exports of goods, while services have been a bright spot for many countries.
Any surprise fall in Thursday's retail sales number would be something of a sea change in the European data but the extent to which it impacts the Euro would likely come down to whether or not financial markets see it reducing the need or scope for further increases in European Central Bank (ECB) interest rates.
"[Interest] rates say sell EUR/USD to 1.05 – the equity market argues buy EUR/USD towards 1.10. It’s why it’s been so darn range bound," says Jordan Rochester, a G10 FX strategist at Nomura.
"We expect EUR outperformance via long EUR/USD, with a target of 1.12 by end-August," he adds in a Monday research briefing.
Above: Selected moving averages denote possible areas of technical support and/or resistance for Euro to Dollar rate.