Euro could hit 1.05

The Euro continues to feel the pressure against the US dollar, hovering near two-month lows against key technical support levels but the European currency could get an opportunity to recover some lost ground if Thursday's inflation figures are anything like those released in the UK last week.

Europe's single currency fell close to its lowest levels against the Dollar since late March in thin public holiday trade on Monday, leading some observers to contemplate further losses potentially taking it back toward 1.06 or below in certain circumstances later this week.

"After an extended run lower through May, valuation looks a little more attractive and a strong consensus seems to be developing among ECB policymakers that the central bank can deploy two more hikes at least," noted Shaun Osborne, chief FX strategist at Scotiabank.

"The EUR is, however, clearly flirting with more softness; retracement support at 1.0726 is (barely) holding on a daily close basis and a clear break under here will target additional EUR losses towards the 1.05 area. Above 1.0760 should bring minor relief from selling pressure," Osborne adds.

One analyst from JP Morgan has downgraded growth forecasts for China in a development that offers support to the Dollar while weighing on the Euro which is highly sensitive to growth prospects in the world's second-largest economy.

This development is expected to allow the US dollar to more freely respond to concerns related to the end of the economic cycle.

Meera Chandan, Global FX Strategist at JP Morgan, says the Euro to Dollar exchange rate pair is likely to test the 1.05 level as growth trades are pared down and the path of least resistance favours further upside in USD against the Chinese yuan.

"Growth signals are not outright defensive yet, but recent changes pave the way for the dollar to more freely respond to elevated carry and end-of-cycle concerns." Chandan noted.

Looking further ahead today, the main drivers of the EUR/USD currency pair will be the release of key real estate data from the US such as the housing price index as well as consumer confidence figures for the month of May.

Tomorrow market participants will await CPI figures from Germany which will play a big part in the decision on the next rate move from the European Central Bank.