The EUR/USD pair is trading sideways around 1.0800 during Wednesday’s European session, following a modest corrective move from its nearly four-week high of 1.0850. Investors are on the sidelines, anticipating the release of the United States Consumer Price Index (CPI) data for June on Thursday.
Economists predict core inflation, which excludes volatile food and energy prices, will increase by 0.2% monthly and 3.4% annually in June. The annual headline inflation rate is expected to decrease to 3.1% from May’s 3.3%, while the monthly figure is projected to rise by 0.1% after remaining unchanged previously.
The CPI data will offer insights into whether expectations for the Federal Reserve (Fed) to begin reducing interest rates at the September meeting are justified.
During his semi-annual Congressional testimony on Tuesday, Fed Chair Jerome Powell indicated that rate cuts are not likely until there is significant confidence that inflation will return to the desired 2% rate. However, Powell also noted signs of weakening US economic strength as the labor market cools. “Labor market conditions have cooled considerably compared to where they were two years ago,” Powell stated, adding that the US “is no longer an overheated economy.”
Daily Digest Market Movers: EUR/USD Gains as ECB Rate-Cut Bets Ease
EUR/USD is maintaining gains above 1.0800, supported by a weaker US Dollar (USD) and a recovery in the Euro. The Marine Le Pen-led far-right National Rally’s failure to secure an absolute majority in the French elections has also eased fears of a financial crisis in France. The US Dollar Index (DXY), which measures the Greenback against six major currencies, is struggling to extend its recovery beyond 105.20.
Despite leading in the first round, the far-right’s inability to win outright reduces concerns about a French financial crisis. However, uncertainty remains regarding fiscal adjustments and ministry distribution, with the economy likely to be managed by a coalition government. Economists anticipate that French President Emmanuel Macron’s centrist alliance will collaborate with the left-wing New Popular Front, led by Jean-Luc Mélenchon.
Meanwhile, the Euro is supported by diminishing expectations of rate cuts from the European Central Bank (ECB). ECB policymakers have avoided committing to a specific rate-cut path, wary of reversing the disinflation process through aggressive policy easing. ECB governing council member and Bank of Italy Governor Fabio Panetta suggested on Tuesday that the central bank could gradually reduce interest rates without pausing efforts to curb inflation. Panetta emphasized that past policy tightening continues to impact demand, output, and inflation.
Technical Analysis: EUR/USD Steadies Above 1.0800
EUR/USD is trading in a narrow range above the 1.0800 level as investors await the US CPI report for June. The currency pair remains above the 20-day and 50-day Exponential Moving Averages (EMAs), which are around 1.0750 and 1.0770, respectively. The overall trend has strengthened as the pair has surpassed the 200-day EMA, which is also around 1.0800.
A Symmetrical Triangle pattern on the daily chart indicates a sharp volatility contraction, suggesting low volume and narrow price movements. The 14-day Relative Strength Index (RSI) is at 60.00. A breakout above this level could trigger bullish momentum, pushing the pair higher.
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