• Spain’s CPI eases in May
• German CPI to be released on Wednesday
• Debt ceiling likely to be approved in Congress

EUR/USD has edged higher on Wednesday. In the European session, EUR/USD is trading at 1.0737, up 0.26%. Earlier, the euro dropped as low as 1.0672, its lowest level since March 20.

Spanish CPI lower than expected

Spain, the fourth-largest economy in the eurozone, saw Inflation fall to 3.2% in May. This follows a 4.1% gain in April and was below the consensus estimate of 3.5%. The sharp drop was mostly due to lower fuel prices. On a monthly basis, CPI fell by 0.1%, after a gain of 0.6% and below the consensus estimate of 0.1%.

Will we see a similar downturn in German inflation on Wednesday? The markets are projecting that CPI for May will ease to 6.8%, down from 7.6% in April. A deceleration in inflation would be positive news, but the ECB’s target of 2% remains very far away and will likely take years to achieve that goal. That means that more rate hikes are likely. The ECB meets next on June 15th and another hike is likely, as inflation remains public enemy number one and the central bank is intent on preventing inflation from becoming entrenched. ECB President Lagarde will deliver public remarks on Wednesday and investors will be hoping for some insights with regard to rate policy.

Debt ceiling deal on its way to Congress

After weeks of difficult negotiations, President Biden and Republican Speaker McCarthy have reached an agreement in principle on the Debt Ceiling. The deal is expected to receive approval from both houses of Congress, although some Republicans are expected to vote against the agreement. US yields have moved higher in recent weeks, buoyed by the uncertainty which has pushed investors towards safe-haven assets. The US dollar has also benefitted from the crisis, and the question remains whether a deal will see a spike in risk sentiment that will cool the hot US dollar.

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EUR/USD Technical

• There is resistance at 1.0753 and 1.0839
• 1.0675 and 1.0624 are providing support