3-month High for Euro-Dollar

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The Euro to dollar exchange rate hit a new three-month high of 1.0916 on Tuesday, with analysts ascribing recent moves to soft U.S. data and falling oil prices.

"News that the ISM manufacturing survey fell below the 49 handle in May increased pressure on the greenback across the board, driving the US Dollar Index (DXY) back to 104. Thus, EUR-USD and GBP-USD accelerated their rebound back above 1.09 and 1.28, respectively," says Roberto Mialich, FX Strategist at UniCredit Bank.

The ISM Manufacturing PMI fell to 48.7 in May from 49.2, undershooting expectations for 49.6. The Prices Paid component of the report read at 57, down from 60.9 and below estimates for 60.

"The US ISM manufacturing report came in generally weak, echoing the message pencilled in by last week’s soft US PCE report and Chicago PMI and offsetting the picture from the May manufacturing PMI," says Evelyne Gomez-Liechti, Rates Strategist at Mizuho.

Oil prices tumbled by nearly 4% at the start of the week as investors reacted to news OPEC would begin increasing production again from October onwards. This provides a deflationary impulse for the global economy while also adding another reason to sell Dollars, in which commodities are priced.

"These are all 'good' news for the Fed, which is likely waiting to see signs that the monetary policy tightening is having some effect. The data continues to paint a picture of a softer US economy, which backs up our view of a Fed cut later in the year," says Gomez-Liechti.

Above: EUR/USD and brent crude prices (bottom) at four-hour intervals. Track EUR/USD with your own custom rate alerts. Set Up Here 

The Euro's rise to new multi-week highs against the Dollar comes just days ahead of the European Central Bank's June policy decision that should see interest rates cut by 25 basis points. Some analysts say that although the ECB will provide interest, whether Euro-Dollar successfully defends 1.09 will ultimately come down to U.S. data.

"Our bias for EUR/USD is that it could remain at the upper end of its 1.08-1.09 range this week, while softer NFP data could potentially be the catalyst for a move above 1.09," says Jesper Fjärstedt, Senior Analyst, FX Strategy, at Danske Bank.

The non-farm payroll (NFP) is the highlight of the week, but before then, there are a couple of other prints to navigate.

"The labour market seems to be the crux of the matter right now. Today’s focus will be on the US JOLTS job openings," Gomez-Liechti. "A strong print will likely erase part of the rally seen in the last few sessions."

Consensus looks for a fall to 8400k in April, down from 8488k in March.