Euro Gains as the US Dollar Frets ahead of the Fed after Benign CPI. Higher EUR/USD
The Euro experienced a decline subsequent to its previous recovery from the low it reached in late May on Tuesday, as the Federal Reserve meeting was approaching today. The European Central Bank (ECB) monetary policy review is scheduled for tomorrow.
The US Consumer Price Index (CPI) for the month of May, released yesterday, showed a year-on-year softening to 4.0%, falling short of the expected 4.1% and the previous reading of 4.9%. However, the Core CPI, which excludes volatile food and energy prices, exceeded expectations by printing at 5.3%, compared to the anticipated 5.2% and the previous reading of 5.5%.
The available data could validate the market’s belief that the Federal Reserve might abstain from raising interest rates in the present scenario, yet they could potentially increase rates in their forthcoming meetings in July or September.
Academic attention is expected to center on the post-decision press conference and the language used by Fed Chair Jerome Powell in order to obtain guidance on the path of interest rates.
Interest rate markets expect the ECB to increase its rates by 25 basis points in order to control inflation, which has exceeded 6%.
In other parts of Europe, the Norwegian Krone is anticipating a peak of 2 months against the EUR in anticipation of the upcoming Norges Bank deposit rate decision.
The Nordic nation’s CPI data from last week indicated a year-on-year acceleration to 6.7% until the end of May. This increase in price pressures may lead the Norges Bank to adopt a more hawkish stance during its upcoming meeting.
On Tuesday, crude oil experienced a positive trading session and maintained its gains as Wednesday trading commenced. Presently, the WTI futures contract is in close proximity to US$ 69.50 per barrel, while the Brent contract is fluctuating around US$ 74.50 per barrel at the time of this writing.
The gold price, which is presently trading close to US$ 1,960, has been negatively impacted by the recent increase in Treasury yields observed earlier this week.
The North American equity indices experienced significant increases at the end of the cash market, with the Russell 2000 leading with an increase of 1.23%. Interestingly, as Wall Street’s stock prices rise, so do the futures market prices for the Fed funds rate in December.
On Tuesday, there has been a divergence in APAC equities as indices in Australia and Japan experienced gains of over one percent, while those in Hong Kong and South Korea observed declines.
Later today, the press conference following the decision made by the Federal Reserve will hold significant importance. Additionally, close attention will be paid to UK data and US Producer Price Index (PPI) measurements.
EUR/USD Technical Analysis
The EUR/USD currency pair has experienced a rebound subsequent to reaching a 10-week low of 1.0635 last week. This value was marginally below the 78.6% Fibonacci Retracement level derived from the movement between 1.0516 and 1.1096, which was recorded at 1.0640.
A potential support zone in the range of 1.0635 – 40 may be identified, which could precede the prior lows at 1.0525, 1.0516, 1.0483 and 1.0443.
On the topside, resistance could be near the breakpoints of 1.0831 and 1.0942.
During the months of April and May, a sequence of elevated values manifested within the range of 1.1075 to 1.1095, which may serve as a potential resistance zone. In terms of the broader perspective, a decisive breach beyond these levels could serve as confirmation of the continuation of an upward trend.
The aforementioned tops served as an expansion of the Double Top pattern, which signaled the commencement of the recent market decline. However, it is important to acknowledge that previous outcomes do not guarantee future outcomes. The neckline associated with this pattern is positioned at 1.0942 and could potentially act as a point of resistance.
