Euro recaptures lost ground

The Euro has managed to regain some composure and encourages EUR/USD to put some distance from Thursday’s multi-week lows near the 1.0700 region against the backdrop of some selling pressure in the dollar and fresh optimism around the US debt ceiling.

On the latter, market participants seem to favour the risk complex on Friday after Republican lawmakers and President Biden appeared to be getting closer to a deal to reduce spending and raise the debt ceiling before a potential default that could have a devastating effect on the economy and global markets. Indeed, negotiators are looking at a deal that would limit spending on most things while simultaneously raising the government's $31.4 trillion debt ceiling for two years.

In the euro, Consumer Confidence in France held steady at 83 in May, while the same gauge is due later in Italy.

In the US, the publication of inflation figures gauged by the PCE and Core PCE will be in the centre of the debate later in the NA session. In addition, Trade Balance results, Personal Income/Spending, Durable Goods Orders and the final print of the Michigan Consumer Sentiment for the current month area all due.

EUR/USD’s sell-off seems to have run out of steam just ahead of the key 1.0700 zone so far this week.

The movement of the euro's value is expected to closely mirror the behaviour of the US Dollar and will likely be impacted by any differences in approach between the Fed and the ECB with regards to their plans for adjusting interest rates.

Moving forward, hawkish ECB-speak continue to favour further rate hikes, although this view appears in contrast to some loss of momentum in economic fundamentals in the region.

Key events in the euro area this week: Germany Final Q1 GDP Growth Rate, GfK Consumer Confidence (Thursday) – Italy, France Consumer Confidence (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle in June and July (and September?). Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.