EUR/USD Outlook: Can China's Recovery Help Rescue the Euro?

EUR/USD has quietly slipped below support at 1.0700/1.0720 and may be gently making its way to the March lows at 1.0515/0530. As we mentioned last week, we think
EUR/USD is relatively cheap given the massive reversal in energy prices over the last year and that, in time, the 1.05/1.07 area will come to be seen as a summer base.
Helping that proposition would be some kind of recovery in China. The release of the China Beige Book has shown some recovery in the China manufacturing sector in May.
Official May Chinese PMI figures are released later this week. A bounceback here, helping to reverse the recent run-up in USD/CNH, could provide the euro with some support.
For today, the eurozone focus will be on the release of industrial and consumer confidence figures for May. Consensus expects some further deterioration here and if so this should keep EUR/USD on the soft side. We will also hear from a raft of ECB speakers today.
Expect more hawkish rhetoric especially in advance of the May eurozone CPI data on Thursday. Consensus expects core eurozone CPI to edge lower to 5.5% year-on-year in May. Another upside surprise here – feeding the sticky inflation narrative – warns that investors could return to pricing a 4.00% ECB deposit rate.
- Chris Turner