- EURUSD begins a crucial week on the right foot, up by 0.82%.
- Last week’s US consumer-related data calmed traders’ expectations of a 100 bps Fed hike.
- EURUSD traders are awaiting the EU’s inflation data and ECB’s monetary policy decision.
EURUSD extended gains to two consecutive days after hitting a fresh 20-year low below parity. Since then, the EURUSD pair has not looked back and reached a new two-week high near 1.0200 before settling at around current price levels. The EURUSD is trading at 1.0167 at the time of writing.
The financial markets narrative remains unchanged. Worries of higher inflation, central banks tightening, and recession jitters linger on investors’ minds. Nevertheless, global equities climbed on positive US equity earnings, signaling that companies are preparing for further Fed tightening, while investors shrugged off China’s coronavirus outbreak, which threatened to keep the supply chain disrupted and consequently higher prices. That said, the greenback is losing 0.73%, underpinning the EURUSD, which will be pressured due to EU inflation data, the ECB’s monetary policy decision, and US S&P Global PMIs by the end of the week.
US Retail Sales and Consumer Sentiment data tempered expectations of the Fed going 100 bps
US Retail sales, dented Fed officials of going 100 bps
Last week’s data give USD buyers enough reasons to book profits ahead of the ECB’s monetary policy decision, one of the reasons for the EURUSD appreciation. US Retail Sales and the UoM Consumer sentiment exceeded estimations and tempered worries of a Federal Reserve 100 bps rate hike, which last Wednesday showed odds of an 80% chance, sparked by CPI topping above 9% YoY, further exacerbated by PPI above the 11% YoY threshold.
EURUSD traders are awaiting the ECB’s monetary policy decision
ECB’s monetary policy meeting on Thursday
The EURUSD will have a volatile week as the ECB’s monetary policy decision lurks. The central bank is widely expected to hike rates by 25 bps, for the first time in 11 years, amidst a period of elevated inflation and energy bills soaring due to the Russian oil embargo. Despite ECB’s hawkish member’s expressions of looking for a 50 bps move, the ECB President Christine Lagarde expressed intentions of tiptoeing with a 25 bps move, opening the door for a larger hike in September, namely a 50 bps.
EU’s inflation in the spotlight ahead of the ECB meeting
On Tuesday, Eurostat is expected to unveil June’s HICP final inflation rate for the Euro area. Estimations lie around 8.6% YoY, higher than the 8.1% of the May reading. In the meantime, core inflation stood at 3.7% YoY, lower than May’s 3.8%. That shows that Europe’s and US inflation are underpinned by high energy and food prices, spreading worldwide, keeping central banks under pressure. If the report beats the expectations, EURUSD traders should be aware of surprises by the ECB, but due to the economic slowdown, the ECB would stick to 25 bps.
US recession fears remain as the US 2s-10s yield curve stays inverted
In the meantime, the US 2s-10-yield curve extends its inversion for the tenth straight day, though less profound than on previous days- At the time of writing, the spread reduced to -0.181%, as traders’ fears about recession calmed. Nonetheless, unless Fed policymakers express concerns about economic growth, that would not deter them from aggressive tightening, which is negative news for EURUSD longs in the future.
ECB vs. Fed differentials, a headwind for the EURUSD
In July, both banks, the ECB and the Federal Reserve will host their monetary policy meetings. Currently, the ECB’s deposit rate lies at minus 0.50%, while the US Federal Reserve’s Federal funds rate (FFR) is at 1.75%, bolstering the appetite for the greenback. With expectations of the ECB hiking 25 bps and the Fed to move at least by 75 bps, differentials would widen further, to -0.25% (ECB) vs. 2.50% (Fed), meaning that the greenback would keep the upper hand, opening the door for further selling pressure on the EURUSD.
EURUSD Price Technical outlook
EURUSD buyers have stepped in, though the major remains downward biased, with the daily moving averages (DMAs) residing well above the exchange rate. The ongoing upward correction is attributed to EURUSD shorts booking profits, causing a rally towards a fresh six-day high above 1.0200.
If EURUSD buyers keep control, the major’s first resistance would be 1.0200. A breach of the latter will expose the July 6 daily high at 1.0276, followed by the 20-day EMA at 1.0310.
On the flip side, the EURUSD first support would be 1.0100. Break below will expose the fresh 20-year low at 0.9952. Once cleared, EURUSD sellers’ next challenge will be December 2002 lows around 0.9859.
EURUSD Key Trading Levels For The Week Ahead