Euro Appears Optimistic North Of 1.0800 Ahead Of ECB Event

The European currency (EUR) makes a significant U-turn. It resumes the weekly upside bias, lifting EUR/USD to the 1.0840/50 band ahead of the key ECB gathering later in the European afternoon.

The Euro and the rest of the risk complex leave behind the initial selling pressure stemming from poor prints from the Chinese docket, reinforcing the asymmetric view of the country’s recovery in the post-pandemic era. Discouraging results from Industrial Production and Retail Sales missed consensus in May. It somehow offset the recent cut by the PboC of the 7-day reverse repo rate, which was intended to boost the domestic economy.

Conversely, the Greenback returns to negative territory and seems to dispute the key support at 103.00 when gauged by the USD Index (DXY) as traders continue to digest the Fed meeting. A glimpse at Wednesday’s FOMC gathering shows that the Federal Reserve has decided to maintain its current policy settings without making any changes. However, they have indicated that they anticipate a higher peak rate in the future, implying that any pause in adjustments might be short-lived.

Closer to home, the European Central Bank (ECB) is forecast to raise its policy rate by a quarter-point at its gathering in the afternoon in the old continent and could signal a similar move in July. In her subsequent press conference, ECB President Christine Lagarde could strengthen this view, as the still elevated inflation in the region supports it.

Daily Digest Market Movers: Euro Faces The Next Up-Barrier Near 1.0880

  • The US Dollar gives away earlier gains and forces the USD Index (DXY) to shift its focus to the 103.00 neighborhood.
  • German 10-year Bund yields extend the rebound in line with their US peers and navigate the area of monthly highs around the 2.50% zone.
  • A sustained decline in the Greenback does not appear to be a done deal following the FOMC event on Wednesday and in light of the “live” meeting expected on July 26. Indeed, the Committee intends to resume raising interest rates, possibly as early as July. Furthermore, Jerome Powell indicated that most of the FOMC members anticipate further tightening, and there were no objections. He clarified that the decision to refrain from hiking rates at the current meeting was not a “skip.” In contrast, the July meeting may involve a discussion on increasing rates, and the FOMC will evaluate each meeting independently before making any decisions.
  • Anticipating a 25 bps rate hike by the European Central Bank, investors are expected to closely follow any hint regarding another potential raise at the July or September meetings.
  • Final inflation figures in France are expected to confirm the persistence of disinflationary pressures. At the same time, the Balance of Trade in the broader euro bloc unexpectedly showed an €11.7B deficit in April.
  • Data releases across the Atlantic could see Retail Sales cooling further, a worsening of the key Philly Fed Manufacturing Index, and further loss of momentum in the labor market as per weekly Initial Jobless Claims, all suggesting the existence of cracks in the so-far resilient US economy.

Technical Analysis: Euro Faces Initial Resistance Near 1.0860

Euro (EUR) must quickly surpass the so-far June top at 1.0864 (June 14) to see gains accelerate and open the door to a rapid test of the temporary 55-day SMA at 1.0876. Once the latter is cleared, the spot might target the weekly top of 1.0904 (May 16) before the psychological 1.1000 mark. North from here, the pair could challenge 2023 high at 1.1095 (April 26), closely followed by the round level of 1.1100 and ahead of the weekly top of 1.1184 (March 31, 2022). In addition, the latter appears propped up by the proximity of the 200-week SMA today at 1.1182.

In case bears regain the initiative, there are no contention levels of significance until the May low of 1.0635 (May 31). The breach of this level could sponsor a more profound decline to the March low of 1.0516 (March 15), seconded by 2023 low at 1.0481 (January 6).

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