The EUR/USD currency pair has weakened to approximately 1.0835 during Monday’s European session, reflecting market caution ahead of significant economic indicators. This decline occurs amid uncertainty surrounding the upcoming Eurozone preliminary Harmonized Index of Consumer Prices (HICP) for July and the Federal Reserve’s (Fed) monetary policy announcement scheduled for Wednesday.
The Eurozone inflation data will be crucial in determining whether the market’s expectations of two additional rate cuts by the European Central Bank (ECB) this year are justified. Some ECB officials have supported the speculation of further rate reductions due to a sluggish economic outlook and the belief that inflation will align with the 2% target by next year.
In response to weaker demand, German Finance Minister Christian Lindner has unveiled a tax relief plan aimed at boosting spending and investment by corporations and households.
Projections suggest that the annual headline and core HICP, which excludes volatile items like food, energy, alcohol, and tobacco, will decelerate to 2.3% and 2.8%, respectively.
Prior to the Eurozone inflation data, investors will also be eyeing preliminary GDP and inflation figures for Germany and Spain, set for release on Tuesday.
Market Movements: EUR/USD Falls Amid Anticipation of Fed Decision
The EUR/USD pair has dropped below 1.0840 as the US Dollar (USD) gains strength, with investors focusing on the Federal Reserve’s interest rate decision. The US Dollar Index (DXY), which measures the dollar’s performance against six major currencies, has risen to around 104.50.
The Fed is expected to maintain its current interest rate range of 5.25%-5.50%. However, market participants will scrutinize the Fed’s monetary policy statement and Chair Jerome Powell’s press conference for indications on potential rate cuts. Analysts anticipate that the Fed may signal openness to rate reductions in September, given the significant progress in bringing inflation closer to its 2% target and emerging risks to the labor market.
Recent data has indicated a deceleration in inflationary pressures, with the US Q2 GDP report showing a faster decline in the Price Index to 2.3%, compared to previous estimates and releases. Additionally, the June core Personal Consumption Expenditures Price Index (PCE) data, which showed a monthly increase of 0.2%, did not diminish expectations for Fed rate cuts. The annual core PCE inflation remains steady at 2.6%.
Investors will also monitor upcoming economic data, including JOLTS Job Openings for June, ADP Employment Change, ISM Manufacturing PMI, and Nonfarm Payrolls for July.
Technical Analysis: EUR/USD Faces Downward Pressure
The EUR/USD pair has slipped below the 1.0850 mark, continuing its downward trajectory within a Symmetrical Triangle formation on the daily chart. The pair remains below the 20-day Exponential Moving Average (EMA), situated around 1.0840. Further declines could see the pair approaching key support levels near 1.0800 and 1.0700.
The 14-day Relative Strength Index (RSI) has returned to the 40.00-60.00 range, indicating that bullish momentum has waned.
On the upside, resistance at the 1.0900 level remains a significant hurdle for the Euro bulls.
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