EUR/USD weakens to 2-month lows and approaches 1.0700

• The selling momentum in EUR/USD appears unabated so far.
• The greenback trades in multi-week peaks vs. its main rivals.
• Final GDP Growth Rate in Germany disappointed investors.

The sell-off in the European currency remains well and sound for yet another session and drags EUR/USD to new 2-month lows around 1.0715 on Thursday.

EUR/USD weaker on USD-buying, debt ceiling

EUR/USD loses ground for the third session in a row and trades in the low-1.0700s for the first time since mid-March on Thursday, always following the relentless march north in the greenback, which in turns appears underpinned by the equally strong rebound in US yields across the curve.

In fact, the still unresolved debt ceiling issue continues to put the risk complex under increasing pressure and lends extra wings to the buck, lifting at the same time the USD Index (DXY) to the area of multi-week tops. In this context, the speaker of the House of Representatives, McCarthy, expressed optimism that an agreement could be reached before June, although the rating agency Fitch put the country's credit rating AAA on "watch" late Wednesday, adding to the fears.

Also weighing on the mood around the euro emerged the disheartening prints from the final German GDP figures, which saw the economy contract 0.5% YoY in Q1 and 0.3% vs. the previous quarter. In addition, the Consumer Confidence gauged by the GfK improved marginally to -24.2 for the month of June.

In the US docket, Initial Claims are due along with another revision of the Q1 GDP Growth Rate, Pending Home Sales and the Chicago Fed National Activity Index.

What to look for around EUR

EUR/USD’s sell-off gathers traction and threatens to challenge the key support at 1.0700 the figure so far on Thursday.

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.

EUR/USD levels to watch

So far, the pair is losing 0.23% at 1.0724 and faces immediate contention at 1.0714 (monthly low May 19) seconded by 1.0712 (low March 24) and finally 1.0516 (low March 15). On the other hand, a break above 1.0878 (55-day SMA) would target 1.1000 (round level) en route to 1.1095 (2023 high April 26).