EUR/USD turned lower Thursday and neared the 21-day moving average with investors likely to refocus for a time on fundamentals while taking a break from U.S. fiscal concerns. The U.S. House of Representatives narrowly passed the tax and spending bill which now must go to the Republican-controlled Senate for debate and changes that could take weeks to accomplish.

Meanwhile, recent euro zone and U.S. data suggest economic divergence again.

May euro zone HCOB manufacturing, services and composite PMIs all came in below estimates and fell below 50, which indicates contraction. U.S. May S&P Global manufacturing and services PMIs surprised to the upside and indicated expansion while the composite increased to 52.1 from 50.6 in April. The data helped the dollar's yield advantage over the euro increase. German-U.S. 2-year spreads widened and terminal rate spreads for the Fed and ECB widened as investors reduced the probability for Fed cuts and increased bets on the ECB making deeper cuts. Should future data indicate widening divergence in economic growth and investors diminish their focus on congressional debate, EUR/USD is unlikely to test April's monthly high and instead may come under downward pressure, potentially retesting support in the 1.1050 to 1.1100 area.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)