Danske Research Team notes that EUR/USD ended last week around 1.1650 after a sharp drop in Oil prices, with US and Euro area yields both moving lower. They highlight upcoming United States (US) ISM Manufacturing Purchasing Managers’ Index (PMI), labor data and the Euro area HICP as key drivers. Euro area unemployment and PMI figures are expected to confirm a still-soft but stable recovery.

Labor data and oil-driven swings

“EUR/USD ended the week around 1.1650 following the big drop in oil prices. US interest rates fell back last week with the 10Y Treasury yield falling to 4.43% down more than 20bp from the top in mid-May. The impact on EUR/USD FX swaps was limited as interest rates in the euro area also fell.”

“In the euro area, May flash inflation data from Germany, France, Italy and Spain (around 75% of the aggregate print) showed headline inflation rising mainly on the back of energy. France, Italy and Spain came in close to expectations, while German regional CPI surprised on the downside.”

“Overall, the data suggest that the ECB can take more time to assess the impact of the energy shock before acting. While a June hike is seeming like a done deal, a second hike already in July is becoming less likely.”

“In the euro area, we receive data on unemployment in April. We expect 6.2%, in line with consensus. While unemployment is low, the labour market has softened, with slower employment growth and weaker expectations from firms after the war in Iran. We also get the final manufacturing PMI for May, which we expect to confirm the flash estimate at 51.4.”

“For the remainder of the week, focus turns to euro area flash HICP on Tuesday. In the US, labour market data is due throughout the week, culminating in the jobs report on Friday.”

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