EUR/USD climbs despite weak EU PMIs, Middle East conflict dominates sentiment

• Euro shrugs off poor HCOB PMIs; German data slightly improves but stays in contraction.
• Iran strikes US base in Qatar after US attacks Iranian nuclear sites; IAEA cooperation suspended.
• Traders await Powell's testimony, German IFO data and fresh ECB commentary this week.

The Euro (EUR) advances against the US Dollar (USD) on Monday, despite the market mood remaining downbeat amid the Middle East crisis. Worse than expected HCOB Flash PMIs in the Eurozone barely weighed in the shared currency, while German PMIs showed a slight improvement, though they remained in contractionary territory. At the time of writing, EUR/USD trades at 1.1567, up 0.40%.

Geopolitics are the primary driver on Monday, as we head into the latest trading week in June. Last Saturday, the US delivered an attack on the three most critical nuclear facilities in Iran, following failed efforts by the White House to reach a deal with Tehran.

Consequently, Iran delivered strikes on a US base in Qatar. Regarding the Ain al-Assad base in Iraq, sirens were activated, as preparation for an expected attack, but there were no missiles launched. Alongside military action, Iran's parliament decided to suspend cooperation with the International Atomic Energy Agency (IAEA).

Data-wise, S&P Global revealed that business activity in the US expanded in the manufacturing sector. Regarding services, companies reported that they're growing at a healthy pace, despite June numbers dipping compared to the previous month's print.

Across the pond, Eurozone HCOB Flash PMIs deteriorated further, missing estimates. In Germany, Flash PMIs improved, providing some relief on the shared currency, even though the European Central Bank (ECB) President Christine Lagarde mentioned that "survey data point overall to some weaker prospects for economic activity in the near-term."

Now, EUR/USD traders' attention shifts to Federal Reserve (Fed) Chair Jerome Powell's testimony before the US Congress and Fed speakers. In the Eurozone, the docket will feature the release of Germany's IFO Business Climate for June, and speeches by ECB De Guindos and ECB Chief Economist Philip Lane.

Daily digest market movers: EUR/USD boosted by Fed's dovish tilt

• EUR/USD extended a leg up after Fed Governor Michelle Bowman shifted dovish and said that she's open to reducing interest rates at the July Federal Open Market Committee (FOMC) meeting, if inflation pressures remained contained.
• The US S&P Global Manufacturing PMI remained steady at 52 in June, surpassing expectations of 51 and indicating continued expansion in the sector. Meanwhile, the Services PMI eased to 53.1 from 53.7, though it slightly outperformed forecasts of 52.9.
• The US Dollar Index (DXY), which tracks the buck's performance against a basket of six currencies, drops 0.42% to 98.35. US Treasury bond yields are also on the back foot, a tailwind for Gold prices.
• The Eurozone HCOB Manufacturing PMI for June was unchanged at 49.4 in contraction territory, below forecasts of 49.8. The Services PMI improved from 49.7 to 50 as projected. Germany's HCOB Manufacturing PMI improved from 48.3 to 49 as expected, while the Services PMI improved from 47.1 to 49.4 but remained shy of expansionary territory.
• Last week, the Fed Chair Jerome Powell said they're in wait-and-see mode, adding that policy is modestly restrictive. He added that as long as the labor market remains solid and inflation cools down, holding rates is the "right thing to do."
• Financial market players do not expect that the ECB will reduce its Deposit Facility Rate by 25 basis points (bps) at the July monetary policy meeting.

Euro technical outlook: EUR/USD surges past 1.1550 as bulls target 1.1600

EUR/USD is upwardly biased, having gapped down and opened the week at around 1.1454, due to risk aversion. Nevertheless, as sentiment improved and Fed Governor Bowman tilted dovish, the pair reclaimed 1.1500, extending its gains past 1.1550.

The Relative Strength Index (RSI) resumed its upward path, an indication that buyers are gathering steam. That said, the EUR/USD path of least resistance is tilted to the upside. The first resistance would be the 1.1600 figure, followed by the June 12 yearly peak of 1.1631. On further strength, the pair could aim towards 1.1650 and 1.1700.

Conversely, if it tumbles below 1.1550, it paves the way for testing 1.1500. Once cleared, the next support is the 20-day Simple Moving Average (SMA) at 1.1450 ahead of 1.1400.