Euro picks up above 1.1400 amid lower Oil prices and a softer US Dollar

• EUR/USD returns above 1.1400 after bouncing up from 13-month lows at 1.1325.
• A sharp decline in Oil prices has improved market sentiment and is providing some support to the Euro.
• US Dollar dips are likely to remain shallow, amid strong US data and rising Fed tightening bets.

The Euro (EUR) pares previous weekly losses against the US Dollar (USD) on Friday, favoured by a sharp decline in oil prices and a somewhat softer US Dollar. The pair explores session highs above 1.1400 at the time of writing, up from 13-month lows at 1.1325, but maintains its broader bearish trend intact.

The common currency is drawing support from cheaper Oil as the price of a barrel of Brent crude fell below $73.00, returning to pre-war levels. Brent prices are 9% down on the week and have accumulated a more than 30% decline over the last six weeks, relieving pressure on oil-importing Eurozone economies.

Hopes of further ECB tightening ease

Lower crude prices, on the other hand, are easing pressure on the European Central Bank (ECB) to keep tightening interest rates, which might limit the Euro’s recovery. ECB council members have shown mixed views in their most recent public appearances, with Isabel Schnabel reiterating the need to tighten monetary policy further to ease inflation, while Emmanuel Mouling said on Thursday that recent changes are steering the economy toward a “more positive scenario.”

Beyond that, a survey by the ECB released on Friday reveals that Eurozone consumers foresee price pressures easing to 3.5% over the next 12 months, down from the 4.0% level estimated in the previous month. Regarding the economic outlook, Europeans see GDP contracting in the medium term, which might prompt the central bank to adopt a more cautious stance on monetary tightening.

The Euro has also been favoured by a mild US Dollar pullback on Friday, although this trend is unlikely to extend much further. The combination of solid US macroeconomic data and rising bets of Federal Reserve rate hikes is likely to keep US Dollar dips limited for some time.

Data released on Thursday revealed that US inflation remains well above target, despite the recent decline in oil prices. Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s inflation gauge of choice, accelerated to a 4.1% year-on-year growth in May, its highest level in three years, endorsing the central bank’s hawkish bias. Later on the day, the Michigan Consumer Sentiment index will be observed to confirm those views.