The EURJPY cross traded 0.3% weaker ahead of the US session on Tuesday, reacting to various rate hike comments and mixed EU macro data.
At the time of writing, it was seen near 136.30.
25 bps, 50 bps, or nothing?
On Monday, Lagarde wrote a blog post on the ECB's website predicting that the bank will exit the negative interest rate zone by the end of the third quarter. While this reinforced a tightening trend, the euro fell later in the day on speculation that the timing was selected to rule out a 50 basis point increase in July, which the ECB's most hawkish officials believe is required.
Lagarde pushed back against such claims in an interview with Bloomberg on the sidelines of the World Economic Forum in Davos, stressing that nothing was off the table but that the ECB's steps should be gradual.
However, on Tuesday, Francois Villeroy de Galhau, a member of the European Central Bank's (ECB) Governing Council and the governor of the Bank of France, poured cold water on summer rate rise forecasts, stating that a 50 basis point boost isn't part of the central bank consensus.
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In May, the Eurozone Manufacturing purchasing managers index (PMI) was 54.4, compared to 54.9 forecasts and 55.5 the previous month. As a result, the index climbed to a two-month high.
In May, the bloc's Services PMI fell to 56.3 from 57.5 projected and 57.7 before. Two-month lows were recorded in the indicator.
In May, the SP Global Eurozone PMI Composite dipped to 54.9, down from 55.3 expected and 55.8 the month before. The barometer fell to its lowest point in two months.
Medium-term outlook remains bullish
It looks like the euro is trying to break out from the recent consolidation phase, with bulls now testing the upper line of the downward channel near 136.70. If they are successful, the euro could rise toward the selling zone of previous highs near 137.60/80,
with another target in the current rally at 140, where the cycle highs are.
Alternatively, the support is expected at 135, and as long as the euro trades above it, the immediate outlook remains bullish.