• EUR/USD drops to lows in the 1.2135/30 band.
  • US Core PCE rose 3.1% YoY, the highest since 1994.
  • US President Biden will announce the FY2022 Budget.

EUR/USD manages to regain some composure following weekly lows in the vicinity of 1.2130 on Friday.

EUR/USD weaker on dollar strength

EUR/USD extended further the weekly leg lower to the area of 1.2130 before some support turned up at the end of the week.

In fact, the buying interest in the dollar accelerated after inflation figures measured by the Core CPE rose 3.1% on a year to April, more than expected and the highest level since 1994.

The higher-than-expected PCE reading failed, however, to reignite some lasting upside momentum in US yields, with the 10-year reference now slipping back to the 1.60% region after climbing as high as the proximity of 1.63% during early trade.

In Germany, yields of the German 10-year Bund also retreats from tops and return to the -0.18%.

Earlier in the euro docket, the final Consumer Confidence tracked by the European Commission came in at -8.1 for the current month.

Later in the NA session, the final May U-Mich Index is due, while markets’ attention will also be on the announcement of the multi-trillion budget by President Biden, with infrastructure and families in the centre of the debate.

What to look for around EUR

EUR/USD recorded new 4-month highs near 1.2270 earlier in the week before coming under some selling pressure to the 1.2130 region. The move higher remains largely underpinned by the improved sentiment in the risk appetite and the persistent sell-off in the greenback amidst rising optimism on the recovery in the euro area, which appears in turn supported by the firmer pace of the vaccine rollout. In addition, better-than-expected key fundamentals pari passu with the surging morale in the bloc also props up the upbeat mood surrounding the pair.

Key events in the euro area this week: ECB C.Lagarde (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery in the region. Sustainability of the pick-up in inflation figures. Progress of the vaccine rollout. Probable political effervescence around the EU Recovery Fund. German elections.

EUR/USD levels to watch

So far, spot is losing 0.27% at 1.2161 and a break below 1.2051 (weekly low May 13) would target 1.1985 (monthly low May 5) en route to 1.1970 (200-day SMA). On the other hand, the next hurdle emerges at 1.2266 (monthly high May 25) followed by 1.2300 (round level) and finally 1.2349 (2021 high Jan.6).

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