- EUR/USD remains steady near its highest level in ten weeks around the 1.0900 resistance level.
- It is supported by weak US initial jobs data and growing expectations of closer monetary policy alignment between the US and Europe.
- The ECB is expected to announce a 25-basis point rate cut next Thursday, along with its quarterly forecasts.
- The press conference of President Lagarde will be closely watched for policy clues.
- Markets are pricing in two rate cuts this year after a surprise spike in eurozone core inflation in May.
In the US, according to the economic calendar, economic data suggests the economy is becoming more vulnerable to higher interest rates, strengthening the case for several rate cuts by the Federal Reserve this year.
According to reliable trading platforms, the EUR/USD exchange rate hit a new three-month high of 1.0916 on Tuesday, with analysts attributing the recent moves to weak US data and lower oil prices. According to analysts at UniCredit Bank, “News that the ISM manufacturing survey fell below 49 in May has increased pressure on the US currency across the board, sending the US Dollar Index (DXY) back to 104.
Consequently, the EUR/USD and GBP/USD pairs have accelerated their recovery back above 1.09 and 1.28, respectively.
According to the results of the economic calendar, the ISM Manufacturing Purchasing Managers’ Index (PMI) fell to 48.7 in May from a reading of 49.2, below expectations of 49.6. The price-driven component of the report came in at 57, down from 60.9 and below estimates of 60. Also, Analysts said the US ISM manufacturing report was generally weak, echoing the message indicated by last week’s weak US personal consumption expenditures report and Chicago PMI, and offsetting the picture from May’s manufacturing PMI.
According to oil trading platforms, Crude oil prices fell by about 4% at the start of the week as investors reacted to news that OPEC will start increasing production again from October onwards. Thus, this provides a deflationary boost to the global economy while also adding another reason to sell the US dollar, as commodities are priced in. Analysts said this is all “good” news for the US Federal Reserve, which is likely to wait to see signs that its monetary tightening is having some effect. The data continues to paint a picture of a softer US economy, which supports our view that the Fed will cut interest rates later in the year.”
Overall, the EUR/USD rally to multi-week highs against the USD comes just days before the European Central Bank’s June policy decision that could lead to a 25-basis point interest rate cut. Moreover, some analysts say that while the ECB will provide the rate cut, the EUR/USD’s success in defending the 1.09 level will ultimately depend on US data.
The US Non-Farm Payrolls (NFP) are the highlight of the week, but before that, there are a few other publications to navigate.
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EUR/USD Technical analysis and forecast:
Based on the performance on the daily chart attached, the EUR/USD is still on an upward trajectory. Bulls will tighten their grip on the overall trend if the EUR/USD moves towards the psychological resistance level of 1.1000. Above that, technical indicators will start moving towards strong overbought levels. On the other hand, the support level of 1.0770 will remain a threat to the current bullish outlook. Ultimately, everything will depend on the reaction to tomorrow's ECB announcement and Friday's US jobs numbers.
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