EURUSD ticked up 0.01% to 1.2194on Thursday, May 27. An attempt by the euro to strengthen during the European session was snuffed out by a sharp downturn in the EURGBP cross pair following remarks by BoE MPC member Gertian Vlieghe. He said the central bank could raise rates as soon as the first half of next year if the job market bounces back faster than expected.
Across the Atlantic, the US economy expanded by 6.4% YoY in Q1, in line with an earlier estimate released in April. Furthermore, initial jobless claims for the week ended May 22 declined by 38,000 to 406,000, a pandemic-era low and the fourth consecutive weekly decrease.
These data points were quite robust but major currencies started to surrender their positions to the USD amid a sharp rise in the yield on 10-year bonds. In Friday morning Asian trading, the euro retraced to its weekly low.
Today’s macro agenda (GMT 3)
- 12:00 Eurozone: economic, industrial and services sentiment (May)
- 15:30 US: personal income and spending (April)
- 16:45 US: Chicago PMI (May)
- 17:00 US: Michigan consumer sentiment (May)
- 20:00 US: Baker Hughes weekly oil rig count
At the time of writing, the euro was trading at 1.2181. USD index futures rose to 90.15. The 10Y UST yield jumped to 1.618% in anticipation of the Personal Consumption Expenditure (PCE)) price index due out stateside later today. This data point will be today’s highlight for the FX market. If the 1.62% level fails to hold, the risk of a further increase to 1.66% will increase. At that level, the single currency would drop to 1.2080. The first currencies to start trending lower were the kiwi and aussie dollars.
EURUSD is currently trading a tad above the key support at 1.2160. The trendline passes through 1.2165 (2). The price action is hovering around the 67-degree angle. Buyers should be able to defend this mark until 12:30 GMT unless negativity rolls in.
According to a Reuters poll, the PCE is expected to come in at 0.6% MoM and 2.9% YoY. Notably, the PCE is the Fed’s preferred metric for measuring inflation.
The EURGBP cross failed to recover after yesterday's plunge. All it takes is for sellers to step on the gas and the price action will drop below the 0.8550 support level, stopping out long positions. In this case, the pound will receive support, while the euro and dollar will come under pressure. All eyes are on US inflation data. Monday is a holiday stateside, so heightened volatility can be expected today.
Bottom line: the emerging bullish impulse snuffed out EURGBP cross gains in the wake of Gertian Vlieghe’s remarks. The cross is still on the back foot, putting pressure on the key pair. The euro slipped to the 1.2160 key support level. In addition to that cross, the euro is under pressure from an uptick in UST yields. Today’s endgame should pan out at 12:30 GMT after the core PCE inflation gauge hits the wires. Monday is Memorial Day holiday in the United States, so volatility will be running high today.