Key Takeaways:
- Eurozone Inflation: Eurozone inflation rose to 2.6% in May, exceeding expectations and reducing the likelihood of an immediate ECB rate cut.
- US Economic Data: The US GDP for Q1 was revised lower, and upcoming business activity and employment data will be critical for assessing the Fed’s policy direction.
- Technical Levels: Key resistance levels are at 1.0900 and 1.0950, while support is at 1.0800-1.0790 and 1.0770.
- Market Sentiment: The EUR/USD will remain sensitive to economic data releases and central bank commentary, influencing its short-term trajectory.
Market Dynamics and Recent Performance
The EUR/USD pair experienced a relatively stable performance over the past week, closing above its lows despite significant fluctuations. Early in the week, the US Dollar gained strength following better-than-expected consumer confidence data. However, the Euro regained its footing as US GDP data for Q1 revealed a decline, leading to increased expectations of a Federal Reserve rate cut in September. Additionally, Eurozone inflation data surprised to the upside, with the CPI rising to 2.6% in May, slightly higher than the forecasted 2.5%, which tempered expectations of an imminent ECB rate cut and supported the Euro.
Technical and Fundamental Influences
Technically, EUR/USD is trading around 1.0830, where the ascending regression channel’s lower limit coincides with the 61.8% Fibonacci retracement of the latest downtrend. This level is bolstered by the 20-period and 50-period Simple Moving Averages (SMA) on the 4-hour chart. If the pair rises above this level and uses it as support, it could face resistance at 1.0900 and 1.0950. On the downside, key support lies around 1.0800-1.0790, followed by 1.0770 and 1.0750.
Fundamentally, the contrasting economic data between the US and the Eurozone continues to shape market sentiment. The US Bureau of Economic Analysis revised Q1 GDP growth lower, causing a dip in the 10-year US Treasury bond yield and weakening the US Dollar. In contrast, stronger-than-expected Eurozone inflation data has bolstered the Euro by reducing the likelihood of an ECB rate cut in the near term. Traders are also anticipating the release of US business activity data and the nonfarm payrolls report, which will provide further insights into the Fed’s policy path.
Looking Forward
In the coming week, the EUR/USD pair will be influenced by several key economic releases. The US nonfarm payrolls report is crucial as it could affect expectations for future Fed rate cuts. A weaker labor market report could increase pressure on the Fed to reduce borrowing costs, potentially weakening the USD. Conversely, strong employment data could bolster the USD and limit the EUR/USD’s upside.
In the Eurozone, the outcome of the European parliamentary elections will be closely watched. Political stability and economic policy directions resulting from the elections could significantly impact the Euro. Additionally, market participants will keep an eye on the ongoing inflation trends and ECB commentary for further clues on monetary policy adjustments.
