Euro edges lower on weak German, eurozone numbers

• Eurozone and German releases were softer than expected
• ECB expected to hike at next week’s meeting

The euro has edged lower on Tuesday. EUR/USD is trading at 1.0695 in the North American session, down 0.16%.

Eurozone and German releases were soft on Tuesday. Eurozone retail sales flatlined in May on a monthly basis, up from -0.4% but shy of the consensus of 0.2%. German Factory Orders declined 0.4% m/m in May, after a dismal -10.4% reading in April, and missed the consensus of +3.0%. The silver lining in the weak releases is they may signal that the eurozone economy is cooling down, as the ECB’s aggressive rate hikes make filter through the eurozone and German economies.

ECB expected to hike next week

The ECB meets on June 15^th and President Lagarde isn’t showing any signs of softening her hawkish stance. Lagarde has stated twice within a week that “there is no clear evidence that underlying inflation has peaked”, even though eurozone core inflation showed a respectable decline in April, dropping from 5.6% to 5.3%. Lagarde said on Tuesday that future rate decisions would be data-dependent and strongly hinted that more rate hikes were coming due to high inflation. There are no tier-1 releases prior to the June meeting, and barring some unusual developments, the ECB is likely to raise rates by 25 basis points, which would bring the benchmark cash rate to an even 4.0%.

US Services PMI dips

The US economy has been showing signs of cooling down, as the Fed’s rate-hike cycle has dampened economic activity. There was plenty of hype around Friday’s nonfarm payroll report, which indicated that job growth remains strong. At the same time, the labor market is showing cracks, such as the jump in unemployment from 3.4% to 3.7%.

The ISM Services PMI, a key gauge of business activity, was lower than expected in May and showed almost no growth, falling from 51.9 to 50.3 points. A reading above 50 indicates growth. The Fed has raised rates by 500 basis points in the current cycle, and if consumers cut back on spending, the services sector, which has carried the US economy, might fall below 50 into contraction territory.

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EUR/USD Technical

• EUR/USD is testing at support at 1.0707. Below there is support at 1.0636
• 1.0780 and 1.0851 are the next resistance lines

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