EUR/USD Continues To Correct Weaker, Important Support Near 1.1300
Frankfurt (July 5) The Euro will remain vulnerable to a correction, although there is still likely to be firm buying support on expectations of an ECB policy shift. Unless there is a notably hawkish Fed tone, EUR/USD support is realistic in the 1.1280-1.1300 range as markets wait for key US data releases and Fed commentary.
Trading conditions were inevitably very thin during the US Independence Day holiday with EUR/USD holding just below the 1.350 level.
There were significant upward revisions to the Eurozone PMI services-sector data, especially for France with an overall increase to 55.4 from the flash reading of 54.7. The composite output index was revised higher to 56.3 from 55.7 and only slightly below six-year highs recorded in May.
Eurozone retail sales data was marginally stronger than expected with a 0.4% gain for May, although there was no significant impact.
ECB member Coeure stated that the central bank had not discussed changing policy and he added that the discussion may come, but hasn’t happened yet.
The absence of any notably hawkish rhetoric triggered some selling pressure on the Euro, although wider pressure for a correction was the more important element in pushing EUR/USD lower as the pair dipped to the 1.1310 area.
Overall Euro selling pressure is still likely to be limited given expectations that the ECB will move to announce some removal of the policy accommodation during the third quarter.
US developments will be crucial over the remainder of this week with the Federal Reserve minutes from June’s meeting released later on Wednesday.
The latest ISM non-manufacturing data is due for release on Thursday ahead of the monthly employment report and Fed Chair Yellen’s written congressional testimony on Friday.
A broadly hawkish Fed tone would support the dollar, although there looks to be little scope for a further shift in Fed Funds rate hike expectations.
Source: EconomicCalendar
