- EUR/USD slips below 1.0700 as the Fed maintains hawkish guidance on interest rates.
- Fed’s Bowman sees no rate cuts this year.
- Investors will focus on the US core PCE and preliminary inflation data for the major economies of the Eurozone this week.
EUR/USD declines below the round-level support of 1.0700 in Wednesday’s European session. The major currency pair remains on the backfoot as the Euro’s near-term outlook weakens amid uncertainty over European Union (EU) legislative elections and growing speculation that the European Central Bank (ECB) could deliver subsequent rate cuts.
Fears over Eurozone elections intensified after French President Emmanuel Macron called for a snap election when his party suffered defeat in preliminary results from Marine Le Pen’s far-right National Rally (RN). The Euro could face more pressure if the shared continent sees a major policy shift.
Meanwhile, expectations for the ECB to deliver back-to-back rate cuts improve as the German economic outlook appears to be worsening due to weak demand prospects. Data showed on Monday that the German IFO Expectations index unexpectedly dropped to 89.0 from the estimates of 91.0 and the former release of 90.3 (downwardly revised from 90.4). On the data release, IFO President Clemens Fuest said, “The German economy is having difficulty overcoming stagnation.”
This week, investors will focus on preliminary June inflation data for Spain, France, and Italy, which will be published on Friday.
Daily digest market movers: EUR/USD weakens as US Dollar resumes upside
- EUR/USD comes under pressure as an appeal for risk-sensitive assets weakens due to hawkish guidance on interest rates by Federal Reserve (Fed) policymakers, who continue to argue in favor of maintaining the current interest rate framework as they want to see a decline in inflation for months before considering rate cuts. The United States inflation declined more than expected in May, however, officials expect that a one-time decline in price pressures will be insufficient to make rate cuts appropriate.
- On Tuesday, Fed Governor Michelle Bowman delivered hawkish guidance on interest rates. Bowman said they are not at a point where rate cuts become appropriate. She pushed back expectations of rate cuts to 2025 and warned of more hikes if disinflation appears to stall or reverse.
- Contrary to the Fed’s hawkish outlook on interest rates, investors expect two rate cuts this year, and the policy-easing process will begin in the September meeting. For more cues on the interest rate outlook, investors await the core Personal Consumption Expenditures Price Index (PCE) data for May, which will be published on Friday.
- According to the estimates, the PCE inflation report will show that price pressures grew at a slower pace of 0.1% month-on-month from the prior release of 0.2%. Annually, the underlying inflation is expected to rise modestly by 2.6% from 2.8% in April. Soft inflation data would boost expectations of the Fed reducing interest rates in September, while hotter-than-expected figures would weaken them.
Technical Analysis: EUR/USD exposes to upward-sloping border of triangle pattern
EUR/USD falls slightly below the crucial support of 1.0700. The major currency pair faces selling pressure near the downward-sloping border of a Symmetrical Triangle in the daily chart near 1.0750, which is plotted from 28 December 2023 high around 1.1140. The pair trades below the 50-day Exponential Moving Average (EMA), which indicates that the short-term outlook 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.
Economic Indicator
Core Personal Consumption Expenditures – Price Index (YoY)
The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures.” Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.
