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The EUR/USD correction from year-to-date highs appears to have faded in recent trade, leaving intact support levels just below the market on the charts. Domestic economic data and developments across the Atlantic may see them tested again. another this week. The price of the EUR/USD currency pair opened trading this week near its lowest level in two months, after testing an important Fibonacci support level near 1.0760 on the charts at the beginning of Friday, before it regained the 100-day average near the 1.08 level.
In general, selling the US dollar has helped stabilize the euro since Federal Reserve Chairman Jerome Powell and others suggested that US interest rates may be left unchanged next month for the first time since January of last year, with no argument to the contrary from US economic data in the past. meanwhile.
Commenting on this, Kit Juckes, chief forex analyst at Societe Generale, wrote in reference Monday to the discussions in Washington about US debt: “I suppose the talk again is a step up from where we were on Friday, when the dollar was selling and the gloom was falling.” “The US doesn’t have any data anywhere close to the importance of debt ceiling talks, but the April PCE reading and the rate of deflation will be interesting on Thursday,” he added.
Thursday’s and Friday’s releases of the PCE reports covering consumer spending and inflation within the Fed’s preferred measure of the consumer price basket are exactly the kinds of official statistics that can easily tip the price of the euro and the dollar. The PCE inflation rate is the Fed’s target metric, so it could upset market hopes for a June pause in the US interest rate cycle this week if there is any resemblance between US inflation pressures and those in Canada where inflation surprised to the upside for the month of April just last week.
A repeat performance in the US could risk seeing the euro finish the week in full swing, although before that the US government debt ceiling saga is likely to compete with S&P Global PMI surveys of Europe’s manufacturing and service sectors and a host of other data for market attention.
“EUR/USD has been driven almost entirely by the greenback in the past week or so, as debt ceiling news has dominated. While that will continue to be the main driver this week, it is likely that some local news will get into the mix on the Euro side. On the ECB side, we have heard some fairly hawkish comments from ECB Governor Christine Lagarde, who has strengthened her position against the idea of a pause.
Market pricing of ECB interest rate expectations may also have helped support the euro rate in recent weeks after it turned in a more hawkish direction as additional 2 per cent increases in borrowing costs were fully priced in for the coming months. It happened amid growing indications of a slowdown in the industrial side of the eurozone economy, which is echoing in other parts of the world including China, where deteriorating economic figures were followed by losses for the renminbi exchange rates last week.
RMB price action is another influence likely to have an impact in and around EUR prices this week with potential supportive effects as long as the RMB-USD rate avoids further bouts of sharp currency depreciation.
- There is no change in my technical point of view, as the general trend of the EUR/USD pair is still bearish.
- Stability around and below the psychological support level of 1.0800 confirms this.
- I expect the euro/dollar to remain in narrow ranges until the markets and investors react to the important and influential events this week, the reading of US growth, the preferred inflation reading of the US Federal Reserve and the minutes of the last meeting of the bank, not to mention the agreement or not regarding the US debt ceiling.
The bears’ continued control of the currency pair’s direction may push it towards the support levels 1.0750 and 1.0680, respectively. On the other hand, according to the performance on the daily chart, the bulls will not control the trend again without moving towards the psychological resistance levels 1.01000 again.
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