EUR/USD is trading cautiously above 1.0700 in Tuesday’s European session, grappling with downward pressure stemming from anticipated declines in Eurozone inflation data. The preliminary Eurozone Harmonized Index of Consumer Prices (HICP) for June is expected to show a year-on-year decrease to 2.5%, down from May’s 2.6%. Additionally, core HICP, excluding volatile components, is projected to slow to 2.8% from the previous 2.9%.
These developments signal weakening price pressures in the Eurozone economy, potentially reinforcing expectations for future interest rate cuts by the European Central Bank (ECB). ECB policymakers are considering further easing measures, though they remain cautious about aggressively cutting rates, fearing a resurgence in inflationary pressures.
Monday’s release of the German HICP report for June indicated softer-than-expected price growth, which could pave the way for consecutive rate cuts by the ECB. ECB President Christine Lagarde, speaking at the ECB Forum on Central Banking, emphasized the need for more data before conclusive action on inflation risks, citing a robust labor market as supporting their patient stance.
Meanwhile, political uncertainty looms with France’s upcoming second-round parliamentary runoffs on July 7, where Marine Le Pen’s National Rally is poised in a competitive position.
In contrast, the US Dollar (USD) has seen a rebound despite mixed economic signals, including a surprise decline in the ISM Manufacturing Purchasing Managers’ Index (PMI) for June. Investors are closely watching Federal Reserve Chair Jerome Powell’s speech for insights into potential rate cuts, with expectations leaning towards a gradual reduction starting in September.
Technically, EUR/USD remains below its 200-day Exponential Moving Average (EMA) near 1.0790, indicative of a bearish trend. The pair recently failed to sustain levels above the 20-day EMA around 1.0740, reinforcing the current downward bias. The Symmetrical Triangle pattern on the daily chart suggests volatility contraction, reflective of subdued market sentiment and cautious trading.
Amidst these dynamics, EUR/USD continues to navigate key support and resistance levels, influenced by economic data releases and central bank communications, shaping near-term market sentiment and direction.
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