Ultimately, the world's most-traded FX pair appears to have enough reasons to make potentially outsized moves this week.
The euro has weakened against the US dollar by about 2.7% so far this month, as we see out the final days of May.
The first 2 days of the new month will feature some tier-1 events on either side of the Atlantic that may jolt global FX markets:
What markets want to know:
If higher-than-expected inflation would in turn force the European Central Bank (ECB) to persist with more rate hikes.
And if so, that should prompt a recovery in EURUSD.
Market expectations:
The Eurozone’s headline inflation, as measured by the consumer price index (CPI), is forecasted to come in at 6.3%.
If so, that would be notably lower than April’s 7% figure.
Otherwise, a lower-than-expected CPI print on Thursday may ease bets surrounding ECB rate hikes, with such prospects then likely to translate into more euro declines in the CPI’s aftermath.
What markets want to know:
If there’s enough “destruction” in the US jobs market to allow the Fed to ease up on its rate hikes.
If so, that should lead to a weaker US dollar and a higher EURUSD.
Market expectations:
However, the US dollar may strengthen and drag EURUSD lower if the US jobs market continues to demonstrate its resilience.
Such resilience may be derived from either a higher-than-expected NFP headline number / lower-than-3.5% unemployment rate / faster-than-expected wage growth.
What markets want to know:
Whether the US Congress can approve a deal to avert a catastrophic default.
If so, EURUSD could fall further as faith is restored in US assets.
Market expectations:
Republicans and Democrats are in a race against time to pass a deal by the June 5th deadline.
Over this past weekend, US President Joe Biden (Democrat) and House Speaker Kevin McCarthy (Republican) did sound optimistic that their tentative deal would garner enough support from their respective party members.
Otherwise, failure to raise the debt ceiling before the US government runs out of cash would all but seal a recession for the world’s largest economy.
Beyond the macroeconomic events listed above, euro bulls (those hoping EUR will move higher) will also be hoping that history will be on their side once more.
Since the euro’s inception in 1999, the month of June has the third-highest average monthly advance for EURUSD.
Euro bulls will be hoping that such seasonality could restore the bloc currency’s year-to-date gains.
At the time of writing, EURUSD has only climbed by a paltry 0.09% so far this year, and is precariously close to completely snuffing out its year-to-date gains over the immediate future.
Should these technical signals fail, traders may have to rely on fundamental forces to trigger a reversal in the euro’s fortunes.
From current levels, Bloomberg’s FX model points to a 75% chance that EURUSD will trade within the 1.0610 – 1.0833 range over the next one-week period.
Furthermore, analyst expectations are concentrated towards the upper end of that range.
Ultimately, the world’s most-traded FX pair appears to have enough reasons to make potentially outsized moves this week.
And depending on how these fundamental and technical forces play out, they should present trading opportunities for investors and traders across global financial markets.
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A highly experienced financial journalist and producer with more than seven years of experience gained across some of Southeast Asia’s (SEA) most prominent business broadcasters.