EUR/USD Weighed By Key Technical Levels Ahead of the ECB & US Inflation Update

  • EURUSD
    (${instrument.percentChange}%)

EUR/USD Analysis

The pair managed to post its first profitable month of the year in May, but the new one has started on the back foot, as the Fed reasserted its hawkishness last week, right before the communication blackout period begun.

Governor Waller supported more 50 basis point hikes "for several meetings" [1], while Vice-Chair Ms Brainard said on CNBC that "Right now, it's very hard to see the case for a pause" [2].

Speaking after Friday's solid NFPs on CNBC, Fed Cleveland President Ms Mester noted that she is "not in that camp that we think we stop in September" and she could "easily be at 50 basis points in that meeting". [3]

Markets now look forward to two key events, that could determine the pair's trajectory and spur volatility. On Thursday, we expect the monetary policy decision by the European Central Bank (ECB), after President Ms Lagarde had recently hinted at interest rates lift-off in July and an exit out of negative rates by the end of the third quarter. [4]

On Friday, focus will shift to US Consumer Price Index (CPI) for May, with markets looking for signs of peak. In April, headline CPI had eased to +8.3% year-over-year, from +8.5% prior. The Fed's preferred measure of inflation, the Core PCE, has also moderated to 4.9% year-over-year from, from 5.2% prior.

The technical outlook has not changed much from last week's analysis, since EUR/USD rejected the descending trendline from this year's highs and the 38.2% Fibonacci of the 2022 High/Low drop, confirming our caution.

Given this rejection and today's difficulties, it is vulnerable to 1.0556, although the 2017 multi-year low (1.0339) looks remote for now.

Despite the fact that the common currency's recovery falters this week, the ECB's hawkish pivot could support it and give it the chance to take another crack at 1.0786, but a strong catalyst would be required for further strength that would threaten 1.0921.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 07 Jun 2022 https://www.federalreserve.gov/newsevents/speech/waller20220530a.htm

2

Retrieved 07 Jun 2022 https://www.cnbc.com/2022/06/02/fed-vice-chair-lael-brainard-says-its-hard-to-see-the-case-for-the-fed-pausing-rate-hikes-.html

3

Retrieved 07 Jun 2022 https://www.cnbc.com/2022/06/03/feds-mester-says-inflation-hasnt-peaked-and-multiple-half-point-rate-hikes-are-needed.html

4

Retrieved 25 Jun 2022 https://www.ecb.europa.eu/press/blog/date/2022/html/ecb.blog220523~1f44a9e916.en.html

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