- The EUR/USD rate rose to 1.0867 in the last week of May, approaching two-month highs seen earlier in the month as traders adjusted their bets on a rate cut.
- Now, investors expect that there is an 88% chance that the European Central Bank will cut interest rates during its next monetary policy meeting next week.
- However, doubts remain about further cuts after June, with traders now expecting only one cut.
According to the platforms of Forex currency trading companies, the price of EUR/USD is stable around the level of 1.0855 at the time of writing the analysis.
The European Central Bank's chief economist told the Financial Times that the central bank is ready to cut interest rates in June, but policy must continue to be tight this year because wage growth will not return to normal until 2026. In fact, negotiated wages have risen. Recently, it increased by 4.7% compared to last year. earlier in the first quarter, approaching record levels seen in the third quarter of 2023. Also, PMI readings showed that private sector activity grew by the most in a year in May amid faster increases in new orders and employment.
According to the economic calendar results, the IFO business climate index in Germany stabilized at 89.3 in May 2024, the same as the revised figure of 89.3 in April, and well below expectations of 90.4. The current conditions sub-index fell to 88.3 from 88.9 in April and expectations of 89.9. On the other hand, business expectations improved to 90.4 from a revised 89.7, compared to expectations of 90.9. Ifo President Clemens Fuest said: "Companies were less satisfied with their current business situation, but expectations rose. The manufacturing, trade and construction sectors are recovering, although the service sector took a slight hit. The German economy is making its way out of the crisis step by step."
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EUR/USD Technical analysis and forecast:
The EUR/USD exchange rate is expected to maintain a positive sentiment in the week starting May 24. However, inflation measures from both the Eurozone and the United States will make trading volatile towards the end of the week. Last week, the euro recorded its first weekly decline against the dollar in six weeks, but this represents only a minor setback in the bullish setup. The EUR/USD is on a short-term upward trend, with the strong rejection last Friday at the lows of 1.08 maintaining the constructive sentiment that could extend in the coming days. For further advances back to the 1.09 area, the support is at 1.0800/10.
Looking ahead to events that could shape price movements in the coming days, Germany will release its inflation figures on Wednesday, which often provide guidance on the direction of the final Eurozone reading scheduled for release on Friday. Meanwhile, the German headline CPI is expected to reach 2.8% year-on-year, with the equivalent Eurozone figure at 2.5%. The basic rule is that a lower value supports ECB rate cuts, which can affect the euro, while higher figures suggest the opposite.
At the same time, the performance of the USD will depend on the US GDP numbers on Thursday, with the market looking for an annualized reading of 1.5% for Q1. Any stronger-than-expected reading could bolster the dollar, as it would support the view that the Federal Reserve is not in a hurry to cut interest rates. More important than the GDP reading itself is the portion of the report detailing personal consumption, as this is an effective measure of personal-level inflation.
Optimality, the market expects personal consumption to reach 2.1% on an annual basis in the first quarter. Friday comes with the release of a measure of personal consumption expenditures inflation, which many economists fondly point to as the Fed's preferred measure.
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