EUR/USD finds temporary cushion near 1.0660, downside remains unabated
- EUR/USD finds interim support near 1.0660 while uncertainty ahead of US core PCE inflation keeps the outlook vulnerable.
- Investors see the Fed reducing interest rates twice this year.
- The Euro will dance to the tunes of the preliminary June HICP data for France, Italy, and Spain on Friday.
EUR/USD rebounds slightly on Thursday’s European session after declining to a seven-week low near 1.0665 the day before. The major currency pair finds support as the US Dollar (USD) struggles to extend its upside amid uncertainty ahead of the United States (US) core Personal Consumption Expenditures (PCE) Price Index data for May, which will be published on Friday. However, the near-term demand remains vulnerable amid fears of widening policy divergence between the US Federal Reserve (Fed) and the European Central Bank (ECB).
The US Dollar Index (DXY), which tracks the Greenback’s value against six major peers, faces pressure in an attempt to move above the crucial resistance of 106.00.
Investors will pay close attention to the US core PCE inflation data, which will provide cues about when and how much the Fed will reduce interest rates this year. The US PCE report is expected to show that core price pressures grew at a slower pace of 0.1% month-on-month in May against 0.2% in April. Annually, the underlying inflation is projected to decelerate to 2.6% from 2.8% in April.
Softer-than-expected inflation figures would boost expectations of early Fed rate cuts, which would be unfavorable for the US Dollar. On the contrary, hot numbers will diminish Fed rate-cut prospects.
Currently, financial markets expect that the Fed will start reducing interest rates at the September meeting and deliver subsequent rate cuts in November or December.
Daily digest market movers: EUR/USD remains on tenterhooks ahead of key events
- EUR/USD continues to face selling pressure near the round-level resistance of 1.0700. The Euro’s near-term outlook is uncertain ahead of the Eurozone’s election outcome and growing speculation that the ECB will deliver back-to-back rate cuts.
- Investors remain cautious over the outcome of the French election amid speculation that the new government would make significant fiscal policy shifts, which would widen the financial crisis. The uncertainty over the French elections was triggered after French President Emmanuel Macron called for a snap election after his party suffered defeat in preliminary results from Marine Le Pen’s far-right National Rally (RN).
- On the monetary policy front, ECB policymakers refrained from committing to any pre-defined interest rate path after the central bank commenced the rate-cutting cycle in its policy meeting in early June amid concerns over wage inflation. However, higher interest rates weigh heavily on overall demand, which impacts activities in manufacturing as well as the service sector.
- Going forward, preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data for June will be under the spotlight next week, as it will provide major cues about the interest rate outlook. Currently, investors expect that the ECB will deliver one more rate cut this year.
Technical Analysis: EUR/USD hovers below 1.0700
EUR/USD trades inside Wednesday’s range as investors sidelined ahead of the US core PCE inflation reading. The downward-sloping border of the Symmetrical Triangle pattern formation on a daily timeframe remains a major barrier for the Euro bulls. A fresh downside would appear if the pair delivers a decisive breakdown of the above-mentioned chart pattern.
The shared currency pair establishes below the 200-day Exponential Moving Average (EMA) near 1.0780, suggesting that the overall trend is bearish.
The 14-period Relative Strength Index (RSI) hovers near 40.00. A bearish momentum would trigger if the oscillator slips below this level.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Artigos Recomendados
