EUR/USD has gained traction and advanced toward 1.0800 in the European session on Wednesday. Although the German IFO survey showed a deterioration in business sentiment, the improvement in the Expectations Index helped the Euro find demand.
EUR/USD has been struggling to gather recovery momentum after having closed in negative territory below 1.0800 on Tuesday. The risk-averse market atmosphere is likely to continue to weigh on the pair in the short term and a four-hour close below 1.0770 could open the door for an extended slide.
The data from Germany showed early Wednesday that business confidence deteriorated in May with the headline IFO Business Climate Index edging lower to 91.7 in May from 93.4 in April. On a positive note, the IFO Expectations Index – indicating firms’ projections for the next six months, improved to 94.8 from 91.7, surpassing analysts’ estimate of 91.9.
Mixed sentiment data from Germany failed to trigger a noticeable market reaction in EUR/USD. Meanwhile, the Euro Stoxx 50 Index is down more than 1% on the day and the US stock index futures lose around 0.3%.
The lack of progress in the US debt-limit negotiations causes investors to remain cautious mid-week. A negative opening in Wall Street and a selloff in US stocks could support the US dollar and force EUR/USD to stay on the back foot. On the flip side, a positive shift in market mood should have the opposite impact on the pair.
There won’t be any high-impact data releases featured in the US economic docket but the Federal Reserve will release the minutes of the May policy meeting.
Fed policymakers have been pushing back against the market expectation for a rate cut later this year. Since markets widely expect the Fed to leave its policy rate unchanged in June, the market reaction to the Fed’s publication should remain short-lived unless it offers fresh clues regarding the possible timing of a policy pivot.