EUR/USD extends upside amid uncertainty over ECB rate cuts beyond June

By TradeRadius | Mon, 27 May 2024 11:20:52 UTC

img for post
  • EUR/USD rises above 1.0850 on a thinly traded day.
  • The Euro strengthens as investors remain uncertain over ECB reducing rates in July too.
  • Investors expect that the Fed will start lowering borrowing rates in the last quarter of this year.

EUR/USD jumps above 1.0850 in Monday’s European session after a calm start to the week ahead of the release of inflation data on both sides of the Atlantic on Friday. The major currency pair strengthens as European Central Bank (ECB) policymakers avoid to commit about extending the rate-cut cycle beyond the June meeting. 

ECB policymakers do not want to promise more rate cuts as they seem to be concerned that aggressive policy easing could revamp price pressures again. 

In this context, traders have dialled back expectations of three rate cuts this year and are seeing only two due to recent economic indicators signalling persisting price pressures, such as the Negotiated Wage Rates for the first quarter and the preliminary HCOB Composite Purchasing Managers Index (PMI) data for May.

Higher wage growth deepens households’ pockets, which leads to a significant rise in consumer spending that fuels inflationary pressures. However, ECB board member and Bundesbank President Joachim Nagel downplayed the effect of higher wage growth, stating that it is a lagging indicator and the long-term trend is expected to remain soft.

On the economic front, German IFO data on Business Climate, Current Assessment and Expectations for May has been released. The overall data missed estimates, however, the Euro remains unchanged. 

German IFO Business Climate Index dipped slightly to 89.3 from 89.4 in April. Investors forecasted a sharp rise to 90.3.

The Current Economic Assessment Index declined to 88.3 from 88.9 in April, missing the consensus of 89.9.

The IFO Expectations Index, which indicates firms’ projections for the next six months at 90.4, fell short of the market consensus of 90.5 but remains higher than the former reading of 89.7.

Daily digest market movers: EUR/USD rises as US Dollar drops

  • EUR/USD moves higher above 1.0850 in a thin trading volume session on account of a holiday in United States markets due to Memorial Day. This week, volatility is expected to be high as the Eurostat is set to release the preliminary inflation data for May and the United States Bureau of Economic Analysis (BEA) will report the core Personal Consumption Expenditure Price Index (PCE) data for April. Both reports will be published on Friday.
  • Investors will keenly focus on the Eurozone inflation data as ECB policymakers are widely expected to announce a rate cut in their monetary policy meeting in June, barring any surprise. ECB officials remain comfortable with market speculation for a return to policy normalization in June, but many are reluctant to commit to any subsequent move and want to remain data-dependent.
  • The expectations for the Eurozone preliminary inflation report suggest that the annual core reading – which strips off volatile items like food, energy, tobacco and alcohol – will remain steady at 2.7%. The headline figure is estimated to have accelerated to 2.5% from 2.4% in April. The inflation data isn’t likely to significantly impact the rate-cut decision for June.
  • Meanwhile, the US Dollar drops in the early European session, extending the steep sell-off of Friday. The US Dollar Index (DXY) fell to 104.60 despite investors losing confidence in the Federal Reserve (Fed) beginning to lower interest rates in the September meeting.
  • The CME FedWatch tool shows that traders see a little over 50% chance that the central bank will keep interest rates unchanged in September, up from 38% last week. The odds leaning towards keeping rates on hold have been driven by a surprisingly strong preliminary US PMI report for May.
  • This week, the core PCE inflation data will influence market speculation for Fed rate cuts in September. The Consumer Price Index (CPI) data for April, which was published earlier this month, showed price pressures cooled after a hot first quarter. This deceleration suggests that the core PCE, the Fed’s preferred inflation measure, will also have softened from its prior reading of 2.7% on a year-on-year basis.

Technical Analysis: EUR/USD clings to triangle breakout

EUR/USD consolidates around 1.0850 ahead of crucial inflation data for both the Eurozone and the US. The major currency pair indicates broader strength as it strongly holds the breakout from the Symmetrical Triangle chart pattern formed on a daily time frame. 

The near-term outlook of the shared currency pair remains firm as it is trading above all short-to-long-term Exponential Moving Averages (EMAs).

The 14-period Relative Strength Index (RSI) has fallen into the 40.00-60.00 range, suggesting that the upside momentum has faded for now.

In case of further upside, the major currency pair is expected to recapture a two-month high at around 1.0900. A decisive break above this level would drive the asset towards the March 21 high at around 1.0950 and the psychological resistance of 1.1000. However, a downside move below the 200-day EMA at 1.0800 could push the pair further down. 




Partners News

China Industrial Output Growth Weakens; Property Investment Downturn Continues

China's industrial production growth slowed more than expected in May and the property investment deteriorated further despite supportive measures, official data revealed on Monday. Industrial production growth decelerated to 5.6 percent in May from 6.7 percent in April, the National Bureau of...

By TradeRadius | 1 Minutes Ago

> >

Consumer prices - May 2024

In May 2024 the rate of change of the Italian consumer price index for the whole nation (NIC) increased by 0.2% on monthly basis and by 0.8% with respect to May 2023 (the same as in April), confirming the flash estimate.

By TradeRadius | 1 Minutes Ago

> >

CoinShares Rebrands XBT Provider, Targets Nordic Expansion

CoinShares International Limited, a leading digital asset investment company, has announced the rebranding of its long-standing crypto ETP brand, XBT Provider, to "CoinShares XBT Provider." This move aligns with the company's group strategy and sets the stage for expansion in the second half of...

By TradeRadius | 10 Minutes Ago

> >

What is circularity?

A vine of green ivy growing from an aluminum sardine tin on a light blue background. Ever since the Industrial Revolution, we’ve consumed products in largely the same way. A company will extract or collect the resources to create a product, which consumers then buy, use, and ultimately throw a...

By TradeRadius | 10 Minutes Ago

> >

EUR/USD Forex Signal: Consolidating Below $1.0709 - 17 June 2024

My previous EUR/USD signal on 11th June produced a profitable long trade from a bullish bounce at the support level of $1.0722. The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle w...

By TradeRadius | 12 Minutes Ago

> >

BTC/USD Forex Signal: Forecast as Bitcoin Forms a Double Top - 17 June 2024

Bitcoin price remained under pressure on Monday morning as the recent bullish momentum faded. The BTC/USD pair was trading at 66,580 on Monday, down from this month’s high of almost 72,000. The price of Bitcoin and other altcoins dipped sharply recently after the Federal Reserve delivered a h...

By TradeRadius | 12 Minutes Ago

> >

AUD/USD Forex Signal: Forecast Ahead of the RBA Decision - 17 June 2024

The AUD/USD pair retreated after last week’s hawkish Federal Reserve decision. It dropped to the important support at 0.6600 ahead of the upcoming Reserve Bank of Australia (RBA) interest rate decision.

By TradeRadius | 12 Minutes Ago

> >

There’s an unbalanced economy of have and have-nots. Here’s how investors should approach that, says Morgan Stanley.

By TradeRadius | 22 Minutes Ago

> >

Gold, Silver Biding Their Time Before Next Breakout

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external...

By TradeRadius | 23 Minutes Ago

> >

Ukraine urges bondholders to accept markdown on more than $20bn of debt

Investors rejected government proposal this month to reduce bonds’ value by up to 60% ahead of deadline

By TradeRadius | 24 Minutes Ago

> >