EUR/USD aims to fit above 1.0760 despite debate over ECB rate hike deepens

• EUR/USD is looking to shift its auction profile above 1.0760 amid weakness in the USD index.
• This could be a tug of war for the Fed as tight labor market conditions advocate for more rate hikes while contracting factory activities favor a pause.
• Lower-than-anticipated Eurozone inflation has deepened the debate over the interest rate hike by the ECB.

The EUR/USD pair has turned sideways after a massive rally to near 1.0760 in the early Asian session. The major currency pair is looking to shift its auction above the aforementioned resistance as the US Dollar Index (DXY) is going through a declining phase after printing a fresh 10-week high above 104.60.

S&P500 ended Thursday’s session with solid gains after the release of downbeat United States ISM Manufacturing PMI data (May). Investors’ risk appetite is extremely solid, however, confusion about interest rate guidance by the Federal Reserve (Fed) has deepened.

On Thursday, the US ISM Manufacturing PMI remained downbeat. The Manufacturing PMI landed consecutively for the seventh time below 50.0, which is a threshold figure that separates expansion from contraction. The economic data landed at 46.9 from the downwardly revised figure of 47.0. Also, the New Orders Index that indicates forward demand dropped significantly to 42.6 vs. the estimates of 44.9. It seems that higher interest rates by the Fed and tight credit conditions have forced firms to operate with lower capacity. Also, individuals are struggling to avail credit for core goods.

While US Automatic Data Processing (ADP) Employment Change (May) showed an addition of 278K jobs, significantly higher than the estimates of 170K. This could be a tug of war for Fed policymakers as tight labor market conditions advocate for more interest rate hikes while consistently contracting factory activities favor a pause this month.

On the Eurozone front, lower-than-anticipated preliminary inflation for May has deepened debate over an interest rate hike by the European Central Bank (ECB) for June month. ECB President Christine Lagarde is expected to raise interest rates by 25 basis points (bps) as core inflation is still persistent.